[PEN-L:1290] Russia: Russian crisis hits world markets

[Gregory Schwartz <grishas@xxxxxxxx>]

--------------2BF6A59EB1AAB98005094027

Russian crisis hits world markets

By Simon Davies in London, William Lewis and John Labate in New York and
Chrystia Freeland in Moscow

Russia's worsening financial crisis sent shockwaves around the world's
markets yesterday as fears for the country's political stability
deepened.

Japanese stocks hit a six-year low and the Dow Jones Industrial Average
closed down by 357.36 points, or 4.2 per cent, at 8,165.99. The FTSE
fell 3.2 per cent.

Bank shares suffered as investors responded to fears over trading losses
and loan provision to the developing world. German banks particularly
are thought to have heavy exposure to Russia. Deutsche Bank shares
continued to plummet, falling DM6.80, or 5.5 per cent, to DM115.80
(£39.38). In New York, Chase Manhattan closed down $6 1/8 at $58 1/8,
while Citicorp fell $10½ to $122½.

"We are seeing a global liquidity crunch, and the only solution is for
the developing world to reduce interest rates if we are to avoid another
1987-style crash," said Ian Harnett at BT Alex Brown. He predicted that
pan-European stock markets would fall another 10 per cent.

The FTSE 100 fell 176.9 points to 5,368.5 in its second-largest points
fall in five years. Continental markets were also down over 3 per cent,
with Switzerland and Spain falling more than 5 per cent.

David Bowers, European equity strategist at Merrill Lynch, said: "Every
man and his dog was overweight in European equities, as it was perceived
to be the great haven. But it is not, so they are now getting out of
equities and into bonds."

German government bonds hit another post-war record low yield of below
4.2 per cent for the 10-year benchmark bond, while UK gilts also
performed strongly. On Wall Street the benchmark 30-Year Treasury bond
rallied almost a full point to 101, sending the yield to a new record
low of 5.377 per cent.

In Latin America, shares on the S?o Paulo exchange fell 9.95 per cent,
bringing the drop since the start of the month to 38.2 per cent.
Argentina's Merval share index plunged 10.6 per cent.

In Russia, the central bank suspended all foreign currency trade on the
Moscow Interbank Currency Exchange for the second day in an effort to
stem the rouble's fall. The exchange will be closed again today.

The central bank's move failed to halt the rouble's fall on the streets,
however, where exchange offices were selling dollars for Rb 13. Even at
that price dollars were scarce in the capital and almost impossible to
buy in the provinces.

The stock market, where trading has nearly ground to a halt due to a
shortage of buyers, fell by nearly 20 per cent to its lowest recorded
level since the Russian trading system opened in September 1995.

The Communist-dominated parliament demanded that President Boris Yeltsin
surrender much of his constitutional authority to the legislature. In
yesterday's volatile conditions it was enough to spark rumours that Mr
Yeltsin was on the verge of resigning.

The parliament, whose approval is required to confirm Victor
Chernomyrdin as prime minister, is also calling for a softening of
monetary policy and tough controls on financial markets. Mr
Chernomyrdin, canvassing support, met Communist leaders and former
general Alexander Lebed.

Mr Chernomyrdin insisted last night that Russia's crisis. was under
control. "Now I finally have a clear picture of the situation, and can
say it is indeed difficult but absolutely manageable," he said. UK
companies with Russian manufacturing activities expressed long-term
commitment to their investments.

Meanwhile Michel Camdessus, managing director of the International
Monetary Fund, will today brief the fund's board on his discussion on
Wednesday in the Crimea with Mr Chernomyrdin, and with President Leonid
Kuchma of Ukraine, a spokesman said.

Separately, the IMF has invited finance ministers from Latin America to
a meeting in Washington next week to discuss policy responses if the
crisis continues to spread.


--
Gregory Schwartz
Dept. of Political Science
York University
4700 Keele St.
Toronto, Ontario
M3J 1P3
Canada

Tel: (416) 736-5265
Fax: (416) 736-5686
Web: http://www.yorku.ca/dept/polisci


--------------2BF6A59EB1AAB98005094027

<HTML>
<B><FONT COLOR="#000000">Russian crisis hits world markets</FONT></B><FONT COLOR="#000000"></FONT>

<P><B><FONT COLOR="#000000">By Simon Davies in London, William Lewis and
John Labate in New York and Chrystia Freeland in Moscow</FONT></B><FONT COLOR="#000000"></FONT>

<P><FONT COLOR="#000000">Russia's worsening financial crisis sent shockwaves
around the world's markets yesterday as fears for the country's political
stability deepened.</FONT><FONT COLOR="#000000"></FONT>

<P><FONT COLOR="#000000">Japanese stocks hit a six-year low and the Dow
Jones Industrial Average closed down by 357.36 points, or 4.2 per cent,
at 8,165.99. The FTSE fell 3.2 per cent.</FONT><FONT COLOR="#000000"></FONT>

<P><FONT COLOR="#000000">Bank shares suffered as investors responded to
fears over trading losses and loan provision to the developing world. German
banks particularly are thought to have heavy exposure to Russia. Deutsche
Bank shares continued to plummet, falling DM6.80, or 5.5 per cent, to DM115.80
(£39.38). In New York, Chase Manhattan closed down $6 1/8 at $58 1/8, while
Citicorp fell $10½ to $122½.</FONT><FONT COLOR="#000000"></FONT>

<P><FONT COLOR="#000000">"We are seeing a global liquidity crunch, and
the only solution is for the developing world to reduce interest rates
if we are to avoid another 1987-style crash," said Ian Harnett at BT Alex
Brown. He predicted that pan-European stock markets would fall another
10 per cent.</FONT><FONT COLOR="#000000"></FONT>

<P><FONT COLOR="#000000">The FTSE 100 fell 176.9 points to 5,368.5 in its
second-largest points fall in five years. Continental markets were also
down over 3 per cent, with Switzerland and Spain falling more than 5 per
cent.</FONT><FONT COLOR="#000000"></FONT>

<P><FONT COLOR="#000000">David Bowers, European equity strategist at Merrill
Lynch, said: "Every man and his dog was overweight in European equities,
as it was perceived to be the great haven. But it is not, so they are now
getting out of equities and into bonds."</FONT><FONT COLOR="#000000"></FONT>

<P><FONT COLOR="#000000">German government bonds hit another post-war record
low yield of below 4.2 per cent for the 10-year benchmark bond, while UK
gilts also performed strongly. On Wall Street the benchmark 30-Year Treasury
bond rallied almost a full point to 101, sending the yield to a new record
low of 5.377 per cent.</FONT><FONT COLOR="#000000"></FONT>

<P><FONT COLOR="#000000">In Latin America, shares on the S?o Paulo exchange
fell 9.95 per cent, bringing the drop since the start of the month to 38.2
per cent. Argentina's Merval share index plunged 10.6 per cent.</FONT><FONT COLOR="#000000"></FONT>

<P><FONT COLOR="#000000">In Russia, the central bank suspended all foreign
currency trade on the Moscow Interbank Currency Exchange for the second
day in an effort to stem the rouble's fall. The exchange will be closed
again today.</FONT><FONT COLOR="#000000"></FONT>

<P><FONT COLOR="#000000">The central bank's move failed to halt the rouble's
fall on the streets, however, where exchange offices were selling dollars
for Rb 13. Even at that price dollars were scarce in the capital and almost
impossible to buy in the provinces.</FONT><FONT COLOR="#000000"></FONT>

<P><FONT COLOR="#000000">The stock market, where trading has nearly ground
to a halt due to a shortage of buyers, fell by nearly 20 per cent to its
lowest recorded level since the Russian trading system opened in September
1995.</FONT><FONT COLOR="#000000"></FONT>

<P><FONT COLOR="#000000">The Communist-dominated parliament demanded that
President Boris Yeltsin surrender much of his constitutional authority
to the legislature. In yesterday's volatile conditions it was enough to
spark rumours that Mr Yeltsin was on the verge of resigning.</FONT><FONT COLOR="#000000"></FONT>

<P><FONT COLOR="#000000">The parliament, whose approval is required to
confirm Victor Chernomyrdin as prime minister, is also calling for a softening
of monetary policy and tough controls on financial markets. Mr Chernomyrdin,
canvassing support, met Communist leaders and former general Alexander
Lebed.</FONT><FONT COLOR="#000000"></FONT>

<P><FONT COLOR="#000000">Mr Chernomyrdin insisted last night that Russia's
crisis. was under control. "Now I finally have a clear picture of the situation,
and can say it is indeed difficult but absolutely manageable," he said.
UK companies with Russian manufacturing activities expressed long-term
commitment to their investments.</FONT><FONT COLOR="#000000"></FONT>

<P><FONT COLOR="#000000">Meanwhile Michel Camdessus, managing director
of the International Monetary Fund, will today brief the fund's board on
his discussion on Wednesday in the Crimea with Mr Chernomyrdin, and with
President Leonid Kuchma of Ukraine, a spokesman said.</FONT><FONT COLOR="#000000"></FONT>

<P><FONT COLOR="#000000">Separately, the IMF has invited finance ministers
from Latin America to a meeting in Washington next week to discuss policy
responses if the crisis continues to spread.</FONT>
<BR><FONT COLOR="#000000"></FONT>&nbsp;<FONT COLOR="#000000"></FONT>

<P><FONT COLOR="#000000">--</FONT>
<BR><FONT COLOR="#000000">Gregory Schwartz</FONT>
<BR><FONT COLOR="#000000">Dept. of Political Science</FONT>
<BR><FONT COLOR="#000000">York University</FONT>
<BR><FONT COLOR="#000000">4700 Keele St.</FONT>
<BR><FONT COLOR="#000000">Toronto, Ontario</FONT>
<BR><FONT COLOR="#000000">M3J 1P3</FONT>
<BR><FONT COLOR="#000000">Canada</FONT><FONT COLOR="#000000"></FONT>

<P><FONT COLOR="#000000">Tel: (416) 736-5265</FONT>
<BR><FONT COLOR="#000000">Fax: (416) 736-5686</FONT>
<BR><FONT COLOR="#000000">Web: <A HREF="http://www.yorku.ca/dept/polisci";>http://www.yorku.ca/dept/polisci</A></FONT>
<BR><FONT COLOR="#000000"></FONT>&nbsp;</HTML>

--------------2BF6A59EB1AAB98005094027--