Ruble, Russian stocks tumble as Georgia says villages bombed
The ruble fell the most since January 2006
The ruble weakened the most in more than two years while Russia`s RTS stock index extended its seventh straight weekly decline after Russian fighter jets bombed two Georgian towns, according to Bloomberg.
Credit-defaults swaps, a measure of bond risk, climbed on concern the former Soviet republics were moving closer to war after Georgia`s Interior Ministry said jets bombed the towns of Gori and Kareli near the breakaway region of South Ossetia.
The ruble fell the most since January 2006 against a basket of dollars and euros. Stocks added to this year`s 22 percent decline in Russia`s 50-share RTS Index after oil slid 19 percent. Prime Minister Vladimir Putin told reporters today in Beijing that Russia would take ``countermeasures`` against Georgia`s ``aggression.``
``We didn`t need this,`` said Ivan Mazalov, who helps manage $5 billion in shares of companies from the former Soviet Union at Prosperity Capital Management in Moscow. ``It`s not going to break the Russian economy, but war is bad for investor sentiment.``
The raid followed an attack by convoys from Russia on Georgian forces near the South Ossetian capital of Tskhinvali, Interior Ministry spokesman Shota Utiashvili said by phone today from Tbilisi, Georgia. Russia`s government denied the bombing claim and the Defense Ministry accused Georgia of ``unleashing a dirty, reckless scheme.``
The Russian currency dropped as much as 0.7 percent before trading at 29.5162, down 0.5 percent, at 2:07 p.m. in Moscow.
The dollar-denominated RTS slumped 3.7 percent to 1,774.32, its lowest since May 2007, while the ruble-denominated Micex Index sank 3.3 percent to 1,388.26.
Energy companies dropped as oil headed for its fourth decline in five weeks, while Bank of Georgia tumbled in London.
``This is the last nail in the coffin,`` said David Tavadian, head of fixed income and derivative sales at Calyon Rusbank SA, a Moscow-based unit of Credit Agricole SA. Calyon`s Russian loan book is worth $7 billion. ``It tells people that in Russia you have to be careful.``
Credit-default swaps on Russia rose 7 basis points to 109, according to CMA Datavision prices at 10:45 a.m. in London.
A basis point on a credit-default swap contract protecting 10 million euros ($15.1 million) of debt from default for five years is equivalent to 1,000 euros a year.
Credit-default swaps, contracts conceived to protect bondholders against default, pay the buyer face value in exchange for the underlying securities or the cash equivalent in the event of a failure to adhere to debt agreements. A rise indicates a deterioration in the perception of credit quality; a decline, the opposite.
Rosneft, the country`s biggest oil producer, sank 2.1 percent to 214.87 rubles. Bank of Georgia, the republic`s biggest bank, dropped 23 percent to $12.30 in London.