Ruble, Russian Stocks Surge as Medvedev Halts Georgia Offensive

By William Mauldin and Emma O'Brien

Aug. 12 (Bloomberg) -- The ruble surged the most in seven years, Russia's Micex Index climbed, and the cost of protecting the country's bonds fell after President Dmitry Medvedev ordered a halt to the military operation in Georgia.

The 30-stock Micex erased a decline of as much as 2 percent and oil extended its drop after Medvedev said military actions in Georgia had achieved the country's goals.

Russian shares slumped to a 22-month low and the ruble fell the most in more than three years on Aug. 8 as the country sent tanks, troops and warplanes into Georgia in what it said was a response to an offensive on South Ossetia.

``Medvedev's decision to halt Russia's military operations triggered some frenzied buying,'' said Julian Rimmer, head of sales trading at UralSib Financial Corp. in London. ``There has also been some institutional money sitting on the sidelines waiting for the moment to commit, and the news headline provided it.''

The Micex added 2.3 percent to 1,445.27 at 1:44 p.m. in Moscow, trimming its 2008 drop to 23 percent. The dollar- denominated RTS Index rose 3.4 percent to 1,802.04.

Russian forces rolled deep into Georgia proper yesterday and took several towns and a military base. Georgian television showed footage today of burning buildings that it reported was a result of Russian bombing of the central city of Gori.

``The aggressor has been punished,'' Medvedev said on state television. Russia has secured the safety of Russian peacekeepers and citizens in the disputed Georgian regions of South Ossetia and Abkhazia, the president said.

Ruble Climbs

Russia's currency gained as much as 1.2 percent to 24.1447 per dollar, its biggest jump since Jan. 4, 2001. It was recently at 24.1668 in Moscow, from 24.4246 late yesterday. Against the euro, the ruble rose to as high as 35.9122, the strongest since January 2005, and was recently 1.1 percent higher at 36.0337.

Those movements left it 1.1 percent higher at 29.5090 against the basket, from 29.8230 yesterday.

Credit-default swaps on Russian debt dropped 2 basis points to 115, according to CMA Datavision prices at 9:55 a.m. in London. The contracts were as low as 102 basis points last week.

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 should a company fail to adhere to its debt agreements. An increase indicates a deterioration in the perception of credit quality; a decline, the opposite.

Crude oil for September delivery fell as much 1.7 percent to $112.48 a barrel in after-hours electronic trading on the New York Mercantile Exchange after Medvedev's comments.

OAO Sberbank, Russia's biggest bank, rose 5.1 percent to 67.49 rubles on the Micex Stock Exchange. OAO Gazprom, the world's biggest natural-gas producer, advanced 4.5 percent to 269.16 rubles.

To contact the reporters on this story: William Mauldin in Moscow at wmauldin1@bloomberg.net; Emma O'Brien in Moscow at eobrien6@bloomberg.net.