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Russia's Finance Ministry announced Wednesday measures to inject liquidity
Russia's Finance Ministry announced Wednesday measures to inject liquidity into the banking sector as Russian exchanges suspended trading after stocks plummeted amid an ongoing global credit crisis.

The ministry said in a statement it would increase lending and extend deposit terms for major banks as markets have been unsettled by the fallout from the mortgage crisis in the United States and the collapse of investment bank Lehman Brothers.

"Russia's Sberbank, VTB and Gazprombank will be offered the chance to place federal funds on their deposits for three months and longer term," the Finance Ministry said. "These are core banks capable of maintaining the banking system's liquidity. Lending for the banks will rise to 1.13 trillion rubles ($44 billion)."

Russia's benchmark RTS and MICEX indexes plunged Tuesday nearly 11.5% and 17.45%, respectively, the biggest falls since the 1998 financial crisis. The stock and currency exchanges suspended trading at 12:10 Moscow time (08:10 GMT) Wednesday on instructions from a federal regulator.

The head of the Federal Service for Financial Markets said later Wednesday the regulator was waiting for the exchanges to file proposals by 17:00 Moscow time on how to stabilize the market.

"We will study the proposals and make a decision [to restart trading] on their basis," Vladimir Milovidov said.

A source in the country's financial authorities said officials from the Central Bank and the Federal Service for Financial Markets would meet with leading stock market players Wednesday to discuss the liquidity crunch in Russia and how to stabilize the situation.

Russia's finance minister said Wednesday that the authorities do not as yet plan to dip into national reserves to raise the domestic banking sector's liquidity.

"The crisis is not so deep as to force us to resort to the [national wealth] funds," Alexei Kudrin said on the Vesti 24 TV news channel. "We can cope with the regular funds at the disposal of the Finance Ministry and Central Bank."

The Finance Ministry also said the government would take other measures this week to support the banking system.

Russian markets have been unstable in recent months over an ongoing decline in oil prices, which dropped from July's $147 per barrel to some $94 Wednesday. Russia's economy is heavily reliant on oil revenues.

They were also affected by capital flight fueled by concerns about the government's role in the British-Russian TNK-BP oil venture dispute, Prime Minister Vladimir Putin's verbal assault on steelmaker Mechel, and last month's armed conflict with Georgia, which strained relations with the West.

On Tuesday, Putin moved to allay investor fears promising to channel state funds into frail equities. "We are studying the possibility of using long-term instruments by the Central Bank. We will act carefully and judiciously," he said.

The Central Bank raised the margin for its repo transactions for a third day in a row Wednesday to a new high of 430 billion rubles ($16.8 billion). On Tuesday, the bank injected 361 billion rubles ($14.2 billion) at its two repo auctions.

Repo transactions, in which banks receive cash from the Central Bank against securities and are to repurchase them at a higher rate, are the latter's main tool for boosting liquidity of the financial sector.

A major independent Russian investment bank, KIT Finance, said Wednesday it was seeking a strategic investor.

"With the aim of overcoming difficulties in payments under repo transactions, which appeared after a sharp decline of the stock market, KIT Finance is holding talks with a strategic investor. The talks will end Wednesday," the bank said in a statement.

The bank earlier said it planned to raise at least $1 billion via its IPO that was due in October 2008.


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