Markets Surrender Tuesday's Gains

The country's stock markets tumbled more than 8.5 percent on Wednesday as oil fell to its lowest level in over a year and investors moved to cash out after a hectic rally the day before.

Playing catch-up with the U.S. and European exchanges, which took heavy hits after rebounds Monday, the MICEX and RTS indexes continued their downward spirals to close with losses of 8.7 percent and 9.3 percent, respectively.

Russian stocks had a strong showing Tuesday, with the MICEX rising 13 percent, after Western markets improved on the news that the European Union would commit 2.2 trillion euros ($3 trillion) to its financial sector. On Monday, the United States announced a list of banks to which it would give a combined $150 billion in exchange for equity stakes.

"Everybody thought that this was the bottom and there would be a recovery," said Vladimir Matias, managing partner at Asset Capital Partners, referring to Tuesday's rally.

"Despite a signal as strong as the European Union intervening, the confidence of the market is still not in place," he said.

Trading on both exchanges was stopped again for a one-hour break early Wednesday afternoon, despite what were relatively tame drops compared to the double-digit free falls that have become a common occurrence in recent weeks. The gentle stabilization of day-by-day volatility shows that traders are adjusting to what appears to be a lengthy recession, analysts said.

The ruble-denominated MICEX closed at 689.7 points, down almost 65 percent from a high of 1956 on May 19. The dollar-denominated RTS finished at 789 points.

James Fenkner, director of Red Star Asset Management, said the continuation of the markets' decline indicated that the economy was in the middle of a two-part financial crisis.

"Right now we're in the stage where all assets get marked down," Fenkner said. "Stage 2 is when the whole world realizes that all their assets were marked down and they stop spending."

Oil and gas companies led the way, with losses of 11.9 percent for LUKoil, 9.6 percent for Gazprom Neft and 7.2 percent for Rosneft, as crude oil dropped to $74.80 per barrel — its first time below $75 since September 2007 and nearly 50 percent lower than its all-time high of $147 this summer. Gazprom kept pace with the oil stocks, falling 9.2 percent.

Sberbank and VTB, which have borne some of the heaviest blows of the crisis, faced similarly steep declines after Merrill Lynch cut price estimates for both by more than 50 percent. Sberbank's shares lost 14.1 percent on MICEX, while VTB closed down 9.6 percent.

Although the Russian financial market is relatively insulated from the rest of the economy, the problems experienced by the banking sector are already expanding into other industries, Fenkner said.

"As an emerging market, Russia's got a front row ticket [to the crisis]," he said, referring specifically to the news that X5, owner of supermarket chain Perekryostok, would be marking down selected goods by 20 percent in Moscow and St. Petersburg.

X5 chief Lev Hasis said in a statement Wednesday that the long-term price cuts were instituted to combat rising food prices and pressure on consumers' pocketbooks.

His announcement came as the State Statistics Service said prices have risen 11 percent this year through Monday. The government has not yet revised its full-year target of 11.8 percent.

The MICEX Metal and Mining Index had relatively milder losses, falling 5.2 percent as the price of gold increased and Norilsk Nickel battled back to close almost even for the day.

Polyus Gold beat the market — but still closed down 2.2 percent — as gold rose 1.1 percent in London, Bloomberg reported. Polymetal, the country's biggest silver producer, was down 5.9 percent.

Norilsk had sunk as low as 13 percent at 5:30 p.m. before rebounding to finish down just 1.8 percent. A Norilsk spokesman said Wednesday evening that the company's board had met to call an extraordinary shareholders' meeting, requested by minority shareholders earlier this week to add independent directors to the board.

Novolipetsk Steel, however, fell in line with the market after cutting its full-year sales forecast by 4 percent.

Staff Writer Anatoly Medetsky contributed to the report.