Russia Again Halts Stock Trading

Emergency Steps Taken to Prevent Collapse as Market Turbulence Spreads

MOSCOW, Sept. 17 -- Russia suspended stock trading for a second straight day and took other emergency measures in an attempt to halt a severe crash Wednesday as market turmoil spread to Latin America and raised fears the U.S. crisis will test the strength of the emerging economies that supply oil and other commodities to the world.

Already battered by falling oil prices and capital flight in the wake of last month's war with Georgia, Russian stocks fell sharply for the third consecutive day despite a decision by the Kremlin to lend $45 billion to the nation's three largest banks. Trading was suspended at midday; more than five hours later, the government sought again to calm the markets by slashing reserve requirements for banks, freeing up as much as $12 billion.

Russia's benchmark index, the ruble-based Moscow Interbank Currency Exchange, or MICEX, has plunged 25 percent this week, including a 17.5 percent drop Tuesday that was its largest decline since the country's traumatic financial collapse a decade ago. The index of the dollar-based Russian Trading System Stock Exchange, or RTS, has fallen 21 percent, and both exchanges have lost more than half their value since hitting highs in May.

Analysts blamed the immediate declines on a liquidity crisis -- a shortage of money -- caused by tightening access to international credit, and a chain reaction of selling by investors who took out loans collateralized by stocks that have suddenly lost much of their value. But the sell-off also reflected investor panic over the health of an economy largely dependent on oil production as petroleum prices have plummeted in recent weeks.

The market turmoil did not appear to spread to all other major oil producers. Stock markets in Kuwait, Saudi Arabia and the United Arab Emirates, for instance, saw gains Wednesday, while Nigeria and Venezuela were modestly down. But the Venezuelan currency tumbled for a sixth straight day, in part on concerns about oil prices.

Brazil, a major exporter of metals and food that also produces oil, suffered a massive sell-off, with the stock market falling 6.7 percent to its lowest level since April 2007 and the local currency dropping to a one-year low against the dollar. Stock markets in Mexico and Argentina also fell sharply, with companies in the mining, oil and financial sectors hit particularly hard.

In effect, the U.S. financial crisis is presenting these emerging-market nations with their first major test since their economies got back on track and began experiencing the rapid growth of the past several years.

"I think this has quite little to do with dropping oil prices or any reevaluation of the long-term prospects" in commodity-producing emerging markets, said John B. Chambers, managing director of Standard & Poor's. "I think this has a lot more to do with financial agents elsewhere needing to raise money any way they can, so they're selling in places where they can."

But the possibility of a slowdown in these emerging markets continued to affect the yields many of them must pay on bonds, making it more expensive for governments to cover their debt payments. The currencies of several countries were also slammed Wednesday, slipping against the dollar as investors anticipated reduced inflows of foreign investment.

Emerging markets overall are far better prepared to cope with turbulence than they were in the 1990s, when a series of financial crises swept Russia, Latin America and Asia. The commodities boom has given them more cash on hand, and many have cut the overspending that had made them heavily dependent on foreign investment.

The continuing turbulence in Russia, for example, appears fundamentally different from the crisis that crippled the nation in 1998, when the government defaulted on debt payments and the ruble collapsed, wiping out the life savings of many ordinary Russians. Today, the government is awash in oil money, boasting no debt and nearly $600 billion in foreign currency reserves, more than all other countries besides China and Japan.

After Tuesday's record sell-off, the Kremlin demonstrated its willingness to use that cash, pumping money into the country's three largest banks, Sberbank, VTB and Gazprombank, in the hope that they would then lend money to smaller banks, many of which are said to be struggling to stay in business. One of them, the boutique investment bank Kit Finance, confirmed it had defaulted on some short-term obligations and was in negotiations to be rescued by a strategic investor.