By Natsuko Waki
LONDON, March 5 (Reuters) - Russian shares fell on Wednesday, eroding the previous day’s gains, and the rouble teetered near record euro lows as investors remained wary about the impact of tensions in Crimea on Russia’s already struggling economy.
The falls in Russian assets stood in contrast to more stable developed markets where concern over the Russia-Ukraine standoff, and possible military action, eased.
China’s yuan had its best day since late 2012 as the central bank allowed the market to reverse part of of its hefty losses since mid-January.
But shares dropped as fears grew over a possible default by a listed company there and on Beijing’s plan to introduce deposit insurance - a move towards freeing up deposit rates.
The broader benchmark emerging equity index edged higher, helped by firmer shares in South East Asia.
While the risk of immediate war has eased, Russian forces remain in control of strategically important Crimea in the Black Sea peninsula.
Investors are eyeing talks between U.S. Secretary of State John Kerry and Russian Foreign Minister Sergei Lavrov in Paris to see if the West would impose sanctions.
“Investors are still nervous and still on the back foot. (Russian President Vladimir) Putin has left all his options open,” said Thu Lan Nguyen, emerging market strategist at Commerzbank in Frankfurt.
“Investors are worried about an economic impact if the West were to decide on economic sanctions.”
The rouble-denominated MICEX index was down 1.5 percent while the dollar-denominated RTS lost 1.6 percent. Both indexes plunged as much as 12 percent on Monday.
Russian bank shares fell sharply again, with VTB down more than 3 percent on the day and Sberbank losing half a percent.
JP Morgan has slashed Russia’s economic forecast to just 0.8 percent this year from an earlier 1.8 percent.
“The enhanced drags on Russian growth include a slide in domestic confidence, reduced capital inflows, and tighter domestic financial conditions,” the bank said in a client note.
The rouble ticked down versus the dollar and euro , having fallen to record euro lows on Monday.
Russia has relatively little foreign debt but the balance of payments position is deteriorating because of capital outflows and falling oil revenues.
The central bank said it had spent the equivalent of $11.4 billion - more than 2 percent of its foreign currency reserves - on Monday supporting the rouble.
The hryvnia was trading at 9.15 per dollar, having fallen as low as 11.7 on Monday. Ukraine’s sovereign dollar bonds were stable.
“The market is not expecting an escalation in conflict in the short term but Kerry is still considering sanctions... so net net, there is no clear way out of here,” said Regis Chatellier, strategist at Societe Generale.
Kerry has raised the possibility of economic sanctions such as asset freezes and visa bans on Russian individuals.
Chinese shares fell 0.9 percent while the yuan rose 0.25 percent against the dollar, having suffered its biggest weekly drop since 1994 last week.
In what would be the country’s first domestic bond default, loss-making Chinese solar equipment producer Chaori Solar said it will not be able to meet interest payments on bonds due on Friday.
The decline in shares follows the yuan’s dramatic weakening last week after the central bank let it fall beyond the official mid-point rate.
Many thought the move was designed to set the stage for further foreign exchange reforms as China began its annual parliamentary meeting on Wednesday.
“The goal is to liberalise the FX regime and financial markets but the problem is there’s not a lot of transparency,” Nguyen said. “A lot of people expect the yuan to appreciate but it is not a one-way street.”
The MSCI emerging index rose 0.3 percent.
Qatar’s share index fell 2.7 percent after Saudi Arabia, the United Arab Emirates and Bahrain said they were withdrawing their ambassadors from Qatar over a security dispute.
The index is on track for the biggest one-day fall since March 2011.
Zambia’s kwacha currency fell to a record low of 5.93 per dollar as China’s economic slowdown weighs on demand for copper. Zambia is a major exporter of the metal.
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