Bloomberg News

Russian Stocks Fall, Led by Lukoil, Norilsk on Rate Concern

May 31, 2006

Russian stocks fell, sending the benchmark Russian Trading System Index toward its biggest monthly drop in two years.

OAO Lukoil led the decline as oil prices slipped. Concern that higher interest rates in the U.S. will make riskier assets less attractive has driven down emerging markets worldwide, with the RTS declining for three straight days.

``It's the same issue of Russia being part of emerging markets, and concern that if U.S. interest rates are high, investors will be taking out money,'' said Nadir Usmanov, who oversees about $80 million at Solid Management in Moscow.

The dollar-denominated RTS Index lost 1 percent to 1462.14 at 1:19 p.m. in Moscow. The ruble-measured Micex Index fell 0.6 percent to 1295.47. The benchmarks pared some of their early declines after indexes in western Europe rebounded.

The RTS has lost 12 percent this month, the most since it fell 16 percent in April 2004. Investors have been selling their holdings in Russia and across emerging markets on concern that the U.S. will keep raising rates to contain inflation. Higher rates boost returns on safer securities, such as bonds in developed markets.

Lukoil, Russia's largest crude oil producer, fell 3.4 percent to $78.70. OAO Surgutneftegaz, the fourth-biggest, slipped 0.4 percent to $1.40. Crude oil fell for the first time in a week in New York as members of the Organization of Petroleum Exporting Countries indicated the group may keep production at near-record levels.

Crude oil for July delivery declined as much 1 percent to $71.32 a barrel. Prices have still gained 17 percent this year and touched a record last month.

`Nervousness Prevailing'

The RTS has still added 29 percent since Jan. 1 and reached a record on May 6 as higher commodity prices lured investors to Russia, the world's No. 2 crude oil producer.

``Nervousness on global factors is prevailing, if not excessive,'' Uralsib Financial Corp. said today in a market report. ``Commodity prices are spectacularly resilient to these concerns. This means the fundamental value of the market is only growing by the day.''

OAO GMK Norilsk Nickel, the nation's biggest mining company, fell 2.8 percent to $121.50. Copper futures in Shanghai, which reached a record two weeks ago, snapped a three- day rally amid speculation economic growth may slow in the U.S. Nickel prices fell for a second session in London after reaching an all-time high on May 26.

Rostelecom, AvtoVAZ Rise

OAO Rostelecom, Russia's biggest long-distance telephone provider, jumped 6.7 percent to $3.95, headed for a record. The company plans to raise revenue from long-distance phone services almost sixfold to 34.7 billion rubles ($1.3 billion) this year, Interfax reported, citing Svetlana Sinadskaya, the company's deputy general director.

OAO AvtoVAZ, Russia's biggest carmaker, rose 6.5 percent to 1,240 rubles on the Micex Stock Exchange. The shares didn't trade on the RTS. Renault SA hopes to buy a stake of up to 20 percent in the Russian carmaker, Vedomosti reported, citing sources close to AvtoVAZ's board of directors.

Renault has been in talks with AvtoVAZ to provide the chassis for a new model to be produced at AvtoVAZ's Togliatti plant in western Russia, the newspaper said.

To contact the reporter on this story: Maria Ermakova in Moscow at mermakova@bloomberg.net.

To contact the editor responsible for this story: Balduin Hesse at bhesse2@bloomberg.net.


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