Russian Stocks Fall for Fourth Straight Day; Sberbank Slumps

By William Mauldin

Aug. 27 (Bloomberg) -- Russia's Micex Index fell for a fourth day on concern that the government's decision to recognize Georgia's breakaway regions will deepen a rift with the West and shake investor confidence.

OAO Sberbank, Russia's biggest bank, slid to the lowest in almost two years amid speculation losses in the value of its government ruble-denominated bonds will erode its capital.

The ruble-denominated Micex Index lost 1.1 percent to 1,278.72 at 2:22 p.m. in Moscow, after earlier climbing as much as 2.4 percent on a rally in oil prices. The dollar-denominated RTS Index dropped 0.7 percent to 1,567.53, extending its third- quarter decline to 32 percent.

Investors pushed the RTS to this quarter's steepest retreat among the world's biggest stock markets as Russia invaded Georgia, tumbling oil prices sent energy producers lower and the government probed steel producer OAO Mechel. Russia's decision to unilaterally recognize the independence of South Ossetia and Abkhazia yesterday drew condemnation from world leaders, with U.S. President George W. Bush asking Russian President Dmitry Medvedev to ``reconsider this irresponsible decision.''

UBS AG today cut its price estimates for 74 Russian stocks, citing Medvedev's move.

``The decision seems to risk further deterioration in the relationships between Russia and the West,'' UBS analysts Dmitry Vinogradov, Clemens Grafe and Bella Rabinovich wrote.

Moves in the RTS Index are growing more disconnected from oil as the equity benchmark suffers its worst monthly decline in eight years. Before August, the RTS posted an 11-fold gain this decade while crude climbed almost fivefold.

`Largely Negative'

``We could be in for a volatile period until there is a resolution to what's going on in Georgia,'' said Vlad Milev, an analyst at Metzler Payden, which oversees $1 billion in East European stocks. ``We are not trading on economic fundamentals or company earnings. We are trading on headline news, and the headlines have been largely negative since the events in Georgia started.''

The RTS has lost 15 percent since Russia invaded Georgia on Aug. 8, leaving it 37 percent below its record high of 2,487.92 in May.

Sberbank fell for a third day, sinking 1.91 rubles, or 3.4 percent, to 54.10 rubles, the lowest level since September 2006.

The bank holds $10 billion in ruble-denominated Russian government bonds, according to Natalia Orlova, banking analyst at Moscow-based Alfa Bank. The yield on Russia's benchmark 30- year 6.9 percent ruble bond has jumped 106 basis points to 8.81 percent since Aug. 7. Bond yields move inversely to prices.

``If they decide to sell a portion of their portfolio, these losses will become material,'' Orlova said by telephone.

To contact the reporter on this story: William Mauldin in Moscow at wmauldin1@bloomberg.net.