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Russia rouble, stocks fall due to Georgia conflict

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The Russian rouble weakened and share indexes hit their lowest levels in nearly two years, as investor sentiment deteriorated further due to the military conflict between Georgia and Russia.

The rouble fell 1.3% to as low as 30.04 versus the central bank-monitored basket of €0.45 and $0.55, from last week's close of around 29.60. That followed a drop of around 1% on Friday when hostilities began.

In the first 15 minutes of trade, Russia's benchmark RTS stock index fell 4.24% to 1,649.75, its lowest level since November 2006. The MICEX index hit an intraday low of 1282.38, its lowest level since September 2006.

The central bank intervened on the currency market to support the rouble, selling foreign currency at 30.10 to the basket.

“Today we see the continuation of what we saw on Friday,” said Alexei Zaitsev, a currency dealer at UniCredit. “There are two factors at play, the strengthening of the dollar and the military conflict.”

Russia renewed its bombing campaign in Georgia on Sunday night, expanding it away from the breakaway region of South Ossetia to include targets near the capital Tbilisi.

Georgia's foreign ministry said up to 50 Russian fighter jets attacked Georgia overnight.

US President George Bush denounced Moscow's “disproportionate response” to the South Ossetian crisis.

“Hostilities continue and that is something that worries us a great deal,” said Lars Christensen, senior analyst, head of new Europe research at Danske Bank in Copenhagen.

“As long as we do not move closer to any resolution of this, as long as Russian forces continue to raid or bomb inside of Georgia, I think the pressure on Russian markets will continue.” he added.

Russian 5-year sovereign credit default swaps widened slightly to 119 basis points (bps), compared with the previous 117 close. However, it reached 126 bps at the widest point on Friday, compared with a 101 bps close on Thursday, according to one trader.

Traders also said they expected the Russian Eurobonds to decline together with stocks and the rouble. “Eurobonds are no different from other Russian assets, so it is time to sell them,” said Alexander Nikolayev from Bank of Moscow. (Reuters)

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