Russia rebuffs Soros on call for devaluation

MARKETS FELL across the world yesterday after George Soros, the billionaire financier, argued that the Russian rouble ought to be devalued.

Dealers said Mr Soros's comments - made in a letter to the Financial Times - severely damaged market sentiment, already hit earlier by the renewed crisis in the Far East.

The Russian markets plunged by more than 10 per cent - forcing the authorities to suspend trading for 35 minutes - as news of Mr Soros's letter spread. By the end of the day, the market had clawed back some of its losses, closing 101.17 points, down 6.5 per cent.

In his letter to the Financial Times, Mr Soros warned: "The meltdown in Russian financial markets has reached the terminal phase. ... The best solution would be to introduce a currency board [that is, pegging the currency to the dollar or the euro] after a modest devaluation of 15 to 25 per cent."

The Russian authorities refuted all suggestions of a devaluation. Mikhail Zadornov, the Russian finance minister, said: "If we thought that a devaluation was inevitable, we would not be following our current policy. But it is avoidable."

Traders were today expecting another difficult day in Russia after a series of warnings about the country's creditworthiness from leading credit rating agencies. Moody's downgraded its evaluation of the country's debt- paying ability, while Standard & Poor's lowered its long-term counterparty credit ratings on six Russian banks.

The jitters hit almost all the world's stock markets. In the UK, the FTSE 100 closed down 1.1 per cent at 5,399.5, having hit a low of 5,350.3 in early morning trade. In the US the Dow Jones closed down 93.46 points at 8,459.50, erasing an early gain of more than 50 points.

Germany was one of the worst-hit European bourses, with worries about the exposure of German banks to Russia. The electronic Xetra DAX ended 0.59 per cent down at 5,355.03 points, off earlier lows.

Sentiment was hit particularly hard in the emerging markets, where there were rumours of across the board stock selling by US institutions.

The dollar and sterling gained during the day as investors sought "safe haven" currencies. At one point the pound gained more than two pfennigs against the mark, while overnight, the dollar spiked above DM1.80 for the first time in a month.

Mr Soros's assessment of the Russian economic position came against a backdrop of renewed worries in Asia. In Hong Kong, HSBC Holdings, the parent company of the Midland and Hongkong banks, yesterday led the market to its lowest level since April 1993. The blue-chip Hang Seng index tumbled 199 points, a loss of almost 3 per cent, and HSBC alone was responsible for 78 points of the fall after a negative broker's report.

In China, official figures were released estimating that the flooding of the Yangtse River could cost China's economy about $24bn and threaten the country's 8 per cent economic growth target.

Outlook, page 17

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