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Oct. 9, 2008, 1:36 p.m. EDT

Russian equities rally, forcing trading suspension

Despite Thursday's rebound, RTS stock index is down 63% year-to-date

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By Polya Lesova, MarketWatch

NEW YORK (MarketWatch) -- Russian equities rebounded Thursday after tumbling earlier this week, with oil and gas shares leading the rally and forcing Moscow's stock exchanges to suspend trading once again.

Both the RTS and Micex stock exchanges reopened for regular trading Thursday after their benchmark indexes tumbled 11% and 14%, respectively, in the previous session. That plunge led to the suspension of trading on the two exchanges. Read more.

On Thursday, the dollar-denominated RTS stock index rose 11% to end at 844.75 points. It was the steep surge in shares this time that forced the RTS exchange to suspended trading at 2:05 p.m. Moscow time.

The Micex stock index rallied 10% Thursday, leading to the suspension of trading on the Micex exchange as well.

Trading in Moscow has become increasingly unpredictable in recent days, with daily trading suspensions and double-digit declines becoming typical.

"I hope," a Micex spokesman told MarketWatch in response to a question about whether or not the Micex will reopen for regular trading on Friday.

'Like much of the world, Russia is trading on U.S. sentiment and Libor rates.'

James Fenkner, Red Star Asset Management

"I'm not sure whether we will receive a prescription from the Federal Service [for financial markets] or not," he said. "I hope we will start tomorrow morning at the regular time in all the regimes."

Uncertain outlook

Despite Thursday's rise, the RTS stock index is down 63% year-to-date, making it the world's worst performer among major emerging markets.

"Oligarch margin calls are not worked through and Iceland banks are believed to have some Russian holdings, which could put pressure on the market," said James Fenkner, principal and portfolio manager of Red Star Asset Management, a hedge fund that invests primarily in Russian assets.

Many Russian oligarchs, who had borrowed heavily to finance securities purchases, have been hit with margin calls during the recent market sell-off. For example, Oleg Deripaska's Russian Machines said last week that it has terminated its $1.54 billion investment in Canadian automotive supplier Magna International Inc. /zigman2/quotes/204433886/composite MGA -2.21% because of the global credit crisis. See full story.

In Iceland, the government is battling to contain a fast-deteriorating financial crisis and has been negotiating with Russia over a 4 billion euro loan.

Icelandic authorities said Thursday that they have taken control of Kaupthing Bank, the country's biggest lender. The move means that Iceland's three biggest banks are now under government control. Read more.

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