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. Last Updated: 07/27/2016

Market Plummets Despite Oil Cuts

The country's stock markets were mauled on Friday, erasing modest gains earlier in the week, after Standard & Poor's cut Russia's outlook and the price of Urals crude slid below $60 per barrel.

Trading on both the MICEX and RTS was halted for an hour in the early afternoon, only to reopen with sharp declines that saw both exchanges ordered closed until Tuesday. London-traded companies continued plummeting, with the FTSE Russia IOB Index falling more than 18 percent.

OPEC said Friday that it would cut production by 1.5 million barrels per day, but the decision did nothing to halt the decline of crude or the energy-heavy Russian stock market. The benchmark RTS Index fell 13.7 percent to its lowest level since December 2004, while the ruble-denominated MICEX Index finished down 14.2 percent.

"There was so much background noise today that the cuts didn't really make a difference," said Ron Smith, chief strategist at Alfa Bank.

"If they would have cut 2 million, it might have meant something, but 1.5 million was the low end of what the market was expecting, and it didn't really make an impression."

The spot price for Urals crude, Russia's main export blend, fell to $59.93 — its lowest level since March 2007 — on concern that the producers' cut was not enough to stabilize prices or jump-start demand.

To make matter worse, S&P cut Russia's long-term credit outlook to "negative" on Thursday before the markets' close, citing concerns over the government's bank rescue, rising capital outflows and dwindling international reserves.

The government has pledged more than $200 billion to support the economy, including injections of $86 billion into the banking system, after the war with Georgia and falling global markets led to capital outflows since August that have been estimated at more than $60 billion.

"I doubt the ratings cut helped the markets very much today," Kingsmill Bond, chief strategist at Troika Dialog, said by telephone from London. "It's a wholesale global panic right now, and the question is who will weather the storm and who won't."

Nervous investors dumped shares across the board.

The RTS Index fell below the 600-point level for the first time since 2005 before being halted at 1:05 p.m. for an hour. The index then fell to 549.4 before being closed at 5:05 p.m. The MICEX called it a day earlier — closing at 513.6 by 2:10 p.m.

The Federal Service for Financial Markets said both indexes would remain closed until Tuesday.

The day's biggest loser was Sberbank, which dropped 23 percent on the MICEX. The country's largest lender confirmed on Friday reports that it could cut staff by 20 percent by 2014 to increase employee efficiency.

Oil and gas companies were also among the day's big decliners, with LUKoil shedding 14 percent to reach a four-year low and Rosneft down 13 percent on the day. Gazprom dropped 15 percent, while regional producer Tatneft fell a full 17 percent.

In London trading, shares of mining giant Norilsk Nickel tumbled 19 percent to their lowest level since December 2004 on falling nickel prices.

"There's a persistent and growing fear of a total collapse," said Andrei Kuk, a senior trader at UralSib. "People are forced to sell right now to cut their losses and meet margin calls.

"South Ossetia, the Mechel situation, the global economic crisis and the price of oil are having a synergistic effect," he said. "Any one of these things by itself would have knocked 10 percent off the indexes, but when you take them all together, the cumulative effect is huge."

The weekly slide in stock price came amid an influx of capital into the Russian market, as the state began using cash from the National Welfare Fund to buy up blue chip stocks earlier in the week.

Finance Minister Alexei Kudrin said Oct. 17 that the state would begin investing $6.7 billion into "secure, high yield" Russian securities as early as the following Monday. Kuk, of UralSib, said it was not immediately apparent which securities the government was purchasing. The buyback "had an effect, but it was very small," he said. "The market has shown itself to be stronger than the government."