Russian stock market crashes, then closes...

World in meltdown.

more....
MOSCOW -(Dow Jones)- Russian stocks suffered their worst day in 10 years Tuesday after fallout from Lehman Brothers' demise and concerns over banking sector liquidity prompted a fresh wave of brutal selling.

The benchmark dollar-denominated RTS index closed 11.5% lower at 1,131.12, while the more liquid, ruble-denominated MICEX shed 17.5% to 1,067.45. Amid the rout, both of Russia's major bourses suspended trading for an hour towards the close, the first time such a step has been taken since Russia's financial crash in 1998.

"The lower start triggered margin calls and forced sales by brokerages whose clients who couldn't deposit more funds as collateral," said Alfa Bank's chief strategist Ron Smith. "It's a self-reinforcing mechanism."

Russian stocks have endured a torrid summer as concern over political risk following Moscow's military campaign in Georgia heightened, prompting an exodus of jittery investors.

The RTS has now lost more than half of its value since peaking in mid-May and trades at levels last seen in December 2005.

Officials from President Dmitry Medvedev down have repeatedly sought to restore confidence in recent days, talking up the attractiveness of stocks and hinting that government money may be used to support prices.

The end of last week saw a mild recovery as those efforts seemed to be working, at least to a small extent. But the fallout from Lehman's bankruptcy, the sale of Merrill Lynch (MER) and new fears over the fate of insurer American International Group Inc. (AIG) have put nerves on edge once again.

The latest news from the U.S. wreaked havoc with Russian financial stocks. State-owned pair OAO Sberbank (SBER.RS) and OAO Bank VTB (VTBR.RS), the country's two biggest lenders, lost 15% and 29%.

Making an already-bad situation worse still, interbank ruble lending rates soared as confidence in the banking system ebbed, starving some banks of vital funds.

Selling pressure on the Russian currency forced the central bank to step in and buy more than $1 billion in rubles, dealers said, pulling yet more liquidity out of the system as demand for short-term repo operations surged.

"Big brokerages and banks are searching for money and applying much bigger haircuts to securities pledged as collateral," said Artem Moskovsky, a trader at UniCredit in Moscow. "Some have started closed off trading limits."

Trading floors Tuesday were rife with talk that a local brokerage was experiencing difficulties. The Vedomosti business daily had reported Thursday that KIT Finance stood to lose around $70 million after betting the wrong way in the RTS futures market.

"Hopefully the U.S. Fed or Treasury will stabilize international markets but the Russian government needs to do something about banking liquidity fast," said James Beadle at Pilgrim Asset Management in Moscow.

Russian officials, including Finance Minister Alexei Kudrin, Tuesday again pledged assistance. Prime Minister Vladimir Putin said monetary officials, policy makers and the country's largest banks would discuss joint efforts to alleviate the current problems.

But so far the mood remains tense, with the fear and uncertainty gripping most investors reflected in equity derivatives trades.

"The options market is arguably pricing in a disastrous scenario and a return to market conditions last seen at the start of the decade," investment bank Troika Dialog said in a note.

Web sites: www.rts.ru, www.micex.ru

Russian market will close within hours.