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. Last Updated: 07/27/2016

Stocks Drop Sharply After Bank Bailouts

The MICEX Index experienced its largest drop since regulators closed local exchanges Sept. 16, sinking 5.5 percent to 1,019 points as bank stocks led the way down on concern that more European banks will fail with repercussions for borrowing rates and liquidity in the country.

The dollar-denominated RTS Index also fell, by 7.1 percent to 1,194 points, as both indexes suffered from declines in oil prices.

Stocks around the world Monday plunged the most since Oct. 1997, and the euro and the ruble sank and bonds rose as governments raced to prop up banks. The British pound dropped the most against the dollar in 15 years after European governments stepped in to save Bradford & Bingley, Fortis and Hypo Real Estate Holding.

In the United States, Wachovia required a takeover by Citigroup, and lawmakers predicted a close vote on the Bush administration's $700 billion bank bailout.

Sberbank tumbled 8 percent, the lowest in more than a week, while Bank of Moscow, partly owned by the Moscow city government, dropped 8.5 percent and VTB fell 5.5 percent.

The MosPrime lending rate among top-tier banks climbed 1.66 percentage points to 7.79 percent, the highest in more than a week. The ruble fell the most against the dollar in three weeks and dropped against the Central Bank's currency basket as crude oil tumbled and the credit crisis spread.

"The crisis is far from over, and European banks are not immune," said Sebastien de Prinsac, head of international sales at Trust Investment Bank.

The RTS has fallen 48 percent so far this quarter. Foreign investors pulled $56.7 billion from Russia between Aug. 8 and Sept. 19, according to BNP Paribas.

LUKoil fell 4 percent in a third day of declines. Crude oil dropped $6.35, or 5.9 percent, to $100.54 a barrel in New York on concern a U.S. plan to spend $700 billion propping up America's banks will fail to unlock credit markets and avert an economic slowdown there.

Gazprom slid 6.3 percent, the lowest in more than a week after Goldman Sachs cut its price estimate on the company 10 percent, citing higher risk for all Russian shares as well as the possibility that the government will "freeze" its plans to raise domestic gas prices or raise gas taxes.

Developer PIK, which is to report first-half earnings Tuesday, dropped 40 percent to $5.03 in London, a record low. Sistema-Hals sank 12 percent. JPMorgan said in a report Monday that investors should "steer clear" of Russian real estate stocks because they will be "hardest hit" in the event of a global recession. "When people own more than one apartment, they are likely to sell one in times of financial difficulty," JPMorgan said. "This could bring pressure to bear on currently high property prices."

Concern that economic growth may slow also weighed on steel shares. Evraz plunged 22 percent in a sixth day of declines in London.

"Commodities, oil, metal -- you don't need these anymore since there's a recession on the horizon," said Alexander Zakharov, co-head of equities at Metropol.