Russian markets surge as confidence returns

MOSCOW (Reuters) - Encouraged by $130 billion (71 billionpound) of state support, buyers flooded Russia's battered stockmarkets on Friday, largely reversing huge losses earlier in theweek.

Both the country's MICEX and RTS exchanges halted tradingtwice as rapid gains exceeded permitted limits. Therouble-priced MICEX closed up 28.7 percent at 1,098 points,recovering almost all the week's losses in a single session.

The big turnaround came as markets reopened after a two-dayclosure. The government used the time to announce massive extrafunding for banks and brokerages, and a promise to buy upshares of big state-controlled firms like Gazprom and Rosneft.

"The mood was great today. Money has come to the market. Wecall it the tsar's bid," said Vladimir Vladimirov from Regionbrokerage, referring to the state money. "The panic is over".

The rally coincided with an address from Prime MinisterVladimir Putin to a foreign investment forum in the Black Searesort of Sochi. Putin pledged to stick to free marketprinciples despite the crisis.

"Our policy, our basic approaches remain unchanged," Putinsaid. "We are betting on private initiative, freedom ofenterprise and rational integration into the world economy."

Russia's banks and energy firms led the market, soaring asmuch as 60 percent after the authorities pledged to spend up to$20 billion boosting their holdings in gas monopoly Gazprom,oil major Rosneft and bank VTB, hoping to resell at a profit inthe future.

VTB soared 59.3 percent to 4.4 kopeks, while Gazprom rose28.7 percent to close at 215 roubles and Rosneft jumped 46percent to 188 roubles.

The Russian market surge came as global stock marketsrecovered strongly in response to widespread moves to tacklethe financial markets crisis.

But ratings agency Standard and Poor's struck a negativenote, saying it had revised the country's outlook down tostable from positive on criticism of the plan to spend windfalloil revenues on supporting financial markets.

"The outlook revision is based on growing uncertaintyregarding Russia's economic policy response as the liquiditycrisis in its financial markets has deepened," the agency said.

Analysts remain concerned about the risks to Russia'sfast-growing economy from the financial crisis.

Russia has huge foreign exchange reserves and strong oiland gas export revenues but its weak banks and heavily borrowedproperty developers are viewed as a potential Achilles heel.

A study by Russian brokerage Renaissance Capital said thatthe oil price remained the biggest single factor affectingRussia's future economic performance.

"If oil prices stay at around $80 per barrel, the impact ongrowth this year will be moderate, with a downgrade of 2008growth to 7.7 percent, on our estimates," Renaissance said.

Politics remains a major risk for Russian markets.

Putin sharply criticised what he described as other states'attempts to drag Russia back to the Cold War -- an apparentreference to a heavily critical speech made by U.S. Secretaryof State Condoleezza Rice in Washington on Thursday.

"We view all attempts to drag us back into the Cold War eraas nothing less than a direct threat to Russia's modernisationproject," Putin said.

Relations between Russia and the West soured last monthafter Moscow sent tanks to repel an attack by U.S. ally Georgiaon the breakaway region of South Ossetia. Analysts estimateinvestors have pulled about $36 billion from Russia since then.

TEXT TO BUY

Top government officials and businessmen at the Sochi forumcheered the good news from Moscow markets.

"We ask you not to leave the hall to make (stock purchase)orders. You can send them by SMS -- the house rules of thisforum permit that," Troika Dialog brokerage managing directorAndrei Sharonov said.

Foreign fund investors, though attracted by Russia'sfast-growing economy and its huge reserves, remain nervousabout the country's poor image in the West.

"Some people back home think this place is one notch aboveNorth Korea," said one U.S. fund manager visiting Moscow. "It'stough to bet against that."

But confidence seemed to be gradually returning, with moneymarket rates falling further to 7.5-8.0 percent from the weeklyrecord of 10.5 percent and demand at the central bank's repoauction below peak levels.

Yields on Russia's benchmark 2030 Eurobond also improvedfrom their highest levels in three and a half years, falling by392 basis points on Friday. The rouble was stable at 30.38versus the euro-dollar basket.

(Additional reporting by Olga Popova and Simon Shuster inMoscow and Oleg Shchedrov and Melissa Akin in Sochi; Editing byPaul Bolding)