Russian crisis hits markets in Europe

The dollar rose and European markets fell at the anouncement of fresh ructions in the Kremlin, a signal that Russia still has the ability to move markets.

The dollar leapt half a pfennig as concerns about political instability in Moscow pressured the German mark and Swiss franc. Share markets in Germany and France also pared gains after news from Moscow.

"This is disturbing news for European assets, given the potential for increased political instability in Russia," said Keith Edmonds, chief analyst at IBJ International in London.

"Russian financial markets had already spent a jumpy day that saw sharp falls in shares and bonds."

"There was panic in the morning," said a trader at the Troika-Dialog bank in Moscow. "The market is very sensitive to political news and it causes panicky movements from both brokers and investors.

"The fact that the Russian situation is heating up a little bit is hurting European bonds, especially Bunds, and that might weigh on our market here," said Kim Rupert, economist and market analyst at consulting firm MMS International Inc.

Russian shares are likely to fall further today, dealers and analysts said. Deutsche Morgan Grenfell analyst, Jim Nail, said one view was that General Lebed's sacking removed uncertainty. But he added: "My view is that it is bad because it reduces the consensus support-ing the current government and eliminates the government's most popular member, and risks a renewed flare-up of the Chechen conflict.

"I would be selling now if I were a trader," he said.

Debt analysts said Russia's political changes are already built into the country's prospective Ba2 sovereign debt rating, and no change in status is anticipated.

"Russia's rating is brand new and was certainly put on to take into account any expectations of more political changes or jockeying," said David Levy, managing director of Moody's sovereign risk unit.