Russia’s stock exchanges suspended trading for a second day yesterday as share prices continued to slump and as the central bank pumped $45 billion (£25 billion) into the country’s three largest banks.

Government regulators halted trading after noon on both the dollar-denominated RTS index and the Micex exchange, which trades in roubles, after panic-selling caused shares to plummet. The RTS fell 6.4 percentage points from its two-year low on Tuesday, to 1,058 points, and the Micex declined 4.7 per cent to 840.09 after suffering its worst one-day drop since Russia defaulted on its debt in 1998. Banks took another hammering, with the state-controlled VTB down another 15.7 per cent and Sberbank almost 10 per cent lower.

The Government insists that the economy is sound, but ministers held an emergency session as interbank lending all but evaporated, despite massive additional funding from the central bank. The Finance Ministry said that it would place extra funds on deposit with VTB, Sberbank and Gazprombank, the banking arm of Gazprom, to support liquidity.

Sberbank and VTB will receive up to 754.2 billion roubles (£16.76 billion) and 268.5 billion roubles respectively. Up to 103.9 billion roubles will be deposited at Gazprombank.

Alexei Kudrin, the Finance Minister, said that he expected the large banks to support smaller institutions. The central bank said that it would cut banks’ reserve requirements by 4 percentage points from today in an effort to address a liquidity shortage in the domestic money market.

Reserve requirements for banks’ liabilities towards foreign banks will be cut to 4.5 per cent from 8.5 per cent, on rouble retail deposits to 1.5 per cent from 5.5 per cent and on other liabilities to 2.0 per cent from 6.0 per cent. The requirements will be gradually raised again from next year.

Russia has suffered the greatest shock among the leading emerging markets as nervousness over the global banking crisis has been compounded by political fears after the hostilities in Georgia last month. The Russian economy is also heavily dependent on energy prices, and oil has lost more than a third of its value since its record peak of $147 a barrel in July. In a sign of the strains within the Russian banking system, KIT Finance announced that it was in talks with an investor after failing to meet some obligations yesterday. Vedomosti, the business newspaper, reported that VTB could buy a stake in KIT, one of Russia’s medium-sized brokerages.

Chris Weafer, chief strategist of Uralsib bank, said: “The \ market is trading as if it is close to a default, while, in reality, it has the world’s third-largest financial reserves and is still earning about $850 million every day from crude, products and gas exports. The reason for the market collapse is partly the forced selling on margin calls . . . but mainly because few buyers are brave enough to buy.”

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