Russian stocks and ruble drop as markets watch Fed decision

The Russian stock market continued falling and the ruble weakened against the dollar and the euro for a second consecutive day on Tuesday, in the wake of Standard Poor’s downgrade of the United States and gloom on international trading floors.

The dollar-denominated RTS stock exchange index lost 4.10 percent by 17:03 Moscow time to 1,589.78, pushing through the psychologically important 1,600 points level. The RTS closed 7.84 percent lower on Monday at 1,657.77 for the first time since December 10, 2010.

The ruble-denominated MICEX index edged down 1.11 percent to 1,483.20 at 17:03 Moscow time after a 5.5 percent slump on Monday.

The official ruble exchange rate plunged 89.56 kopecks against the dollar to 29.42. The unit fell nearly a ruble against the euro to 41.90.

“Russia is likely to be affected by the policy of weakening of national currencies pursued by governments in different countries. The Russian authorities, benefiting from the situation on the world financial markets, just cannot prevent the ruble’s gradual devaluation,” said Vitaly Markov, a senior trader from Globex bank.

“We cannot call this fall a landslide, but a gradual systematic weakening may continue and the mark of 31 roubles per dollar looks rather close.”

Markov said that in the most optimistic scenario, the ruble could fall to 33-35 to the dollar and to 45 to the euro by fall.

Russia’s central bank wants the ruble to free-float in the medium-term to allow companies to be responsible for their own currency risks and not shift this responsibility to the government.

Global stocks have been tumbling since late Friday when SP took the decision to cut the U.S. top rating by one notch to AA-plus, over concerns about America’s growing budget deficit.   

As of 13:03 GMT, the U.S. Dow Jones had dropped 5.55 percent to 10,809.85, London’s FTSE 100 edged up 0.06 percent to 5,071.94. Frankfurt’s Dax eased 1.48 percent to 5,835.32, while France’s Cac 40 went up 0.35 percent to 3,136.05.

Analysts have said the market would watch the results of the Federal Reserve meeting and subsequent policy statement at around 19:15 GMT.

Many experts expect the Fed to continue pumping more money in the economy through a third round of quantitative easing or QE3.

“Investors are seriously counting on the Federal Reserve at least hinting at possible additional measures to support the economy, and given the current situation on the financial markets a third quantitative easing program could be announced,” Aton analyst Yelena Kozhukhova said.

“But even in this case it would be too early to count on even a short-term positive reaction. Investors are likely to want decisive moves not only from the Fed, but also from other regulators to regain confidence in the economy.”

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