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Sept. 19, 2008, 6:13 p.m. EDT

Russian rally sends stocks 30% higher

Epic swing prompts another temporary suspension of trading

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By Polya Lesova, MarketWatch

NEW YORK (MarketWatch) -- Russian stocks rallied nearly 30% Friday, causing the markets' regulator to halt trading once again on the two main stock exchanges, after the government took a series of steps aimed at stemming the country's financial turmoil.

The Russian markets joined a broad surge in global stock markets, which were buoyed by hopes that the U.S. government would hammer out a broad-ranging plan to fix the global financial crisis. See full story.

Emerging equity markets rallied around the world, but Russian markets posted the most dramatic gains. See Emerging Markets Report.

In Moscow, authorities halted trading on the two main stock exchanges, the RTS and the Micex, for several hours after stocks posted unusually sharp gains.

The ruble-denominated Micex index soared 29% to finish at 1,098 points.

The dollar-denominated RTS stock index rallied 22% to end at 1,295.91 points. Oil and gas as well as financial stocks led the gains.

The RTS Oil and Gas index soared 28% and the RTS Financials index rallied 20%.

For the week, the RTS and Micex indexes both finished with a loss of 3%.

Friday's trading halt follows several suspensions this week precipitated by steep sell-offs.

Trading on the Micex and the RTS was closed Thursday, as the Russian government rolled out a package of market-stabilization measures. These included a pledge that $20 billion would be injected into the stock market and a cut in the oil export duty. In addition, the central bank and the finance ministry have injected billions of dollars into the banking system in recent days in an attempt to ease the severe liquidity shortage gripping Russian markets. Read more.

"While today's rebound is encouraging, significant political risk still hangs over Russian markets," said Cliff Kupchan, an analyst at Eurasia Group.

"Russia also remains vulnerable to dropping commodity prices, especially oil prices, and global troubles, particularly in the U.S., could drag Russia down again," he said in a research note.

Russian stocks remain deeply in the red for the year after several weeks of fierce selling by domestic and foreign investors. The RTS stock index has tumbled about 43% this year, making it one of the worst performers in the world.

Sharp drops in Russian share prices have sparked fears of a replay of the country's 1998 financial crisis. Investor confidence has been hurt by the global credit crisis, the recent sharp decline in oil prices and the fallout from Russia's war with Georgia last month.

Standard & Poor's Ratings Services cut the outlook on Russia's credit rating to stable from positive Friday, citing in part an "ambivalent official policy" toward shareholders' property rights.

"The outlook revision is based on growing uncertainty regarding Russia's economic policy response as the liquidity crisis in its financial markets has deepened," Standard & Poor's credit analyst Frank Gill said.

"The situation is exacerbated by rising downside risk to Russia's terms of trade as the world economy flirts with recession," he said.

In London trading, shares of oil giant Lukoil rallied 18%, while Gazprom soared 16% and Rosneft surged 22%. Shares of VTB Bank soared 39%.

In New York trading, the Market-Vectors Russia ETF , which tracks the performance of the Russian stock market, soared 18%.

"We believe recent capital injection measures provide a short-term buying opportunity and investors should focus their attention on major blue chips," J.P. Morgan Chase analysts said in a note to investors.

In particular, they recommend companies with state support, such as Sberbank, Rosneft and Gazprom , but they cautioned that real-estate-related stocks will still face liquidity problems.

The analysts also cautioned that emergency measures in Russia are "not a magic wand."

"The main question is how quickly confidence can be restored and if moral hazard can be prevented from entering the financial system," the J.P. Morgan analysts said. "We would advise investors to buy Russia on momentum, but keep an eye on the risks."

Polya Lesova is a New York-based reporter for MarketWatch.

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