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Russia tightens Crimea grip as markets fall

March 3 (Reuters): Russia paid a financial price today for its military intervention in neighbouring Ukraine, with stocks, bonds and the rouble plunging as President Vladimir Putin’s forces tightened their grip on the Russian-speaking Crimea region.

The Moscow stock market fell by 11.3 per cent, wiping nearly $60 billion off the value of Russian companies in a day, and the central bank spent $10 billion of its reserves to prop up the rouble as investors took fright at escalating tensions with the West over the former Soviet republic.

Russia’s Black Sea Fleet has not issued an ultimatum to Ukrainian forces in Crimea to surrender by 5am tomorrow or face an assault, Interfax news agency quoted an official at the fleet’s headquarters as saying.

The fleet has a base in Crimea and Moscow has effectively established control over the peninsula, which is part of Ukraine. Interfax quoted an unnamed source in the Ukrainian defence ministry earlier today as saying a deadline to surrender at 0300 GMT had been set by the Black Sea Fleet’s commander.

Ukraine said Russia was building up armoured vehicles on its side of a narrow stretch of water closest to Crimea after Putin declared at the weekend he had the right to invade his neighbour to protect Russian interests and citizens.

Both sides have so far avoided bloodshed, but the market rout highlighted the damage the crisis could wreak on Russia’s vulnerable economy, making it harder to balance the budget and potentially undermining business and public support for Putin.

Russian deputy economy minister Andrei Klepach said market “hysteria” would subside but strains with Brussels and Washington — which has threatened visa bans, asset freezes and trade curbs — would remain to weigh on the economy.

On the ground in Perevalnoye, half way between the Crimean capital of Simferopol and the Black Sea, hundreds of Russian troops in trucks and armoured vehicles — without national insignia on their uniforms — were surrounding two military compounds, confining Ukrainian soldiers, who have refused to surrender, as virtual prisoners.

Ukraine called up reservists yesterday and Washington threatened to isolate Russia economically after Putin’s action provoked what Britain’s foreign minister called “the biggest crisis in Europe in the twenty-first century”.

EU foreign ministers began emergency talks on Ukraine but diplomats said they would press for mediation to prevent escalation and hold in reserve the possibility of economic sanctions. A draft statement said the EU had decided to suspend talks with Russia on visa liberalisation because of the seizure of Crimea.

The Organisation for Security and Cooperation in Europe (OSCE) said it was trying to convene an international contact group to help defuse the crisis after Germany said Chancellor Angela Merkel had convinced Putin to accept such an initiative.

Switzerland, which chairs the pan-European security body, said the contact group would support Ukraine during its transition and coordinate aid and could also discuss sending observers to monitor the rights of national minorities.

The US urged Moscow to support sending OSCE observers to Ukraine to help defuse tension. “There will be very, very broad consensus for that monitoring mission. We call on Russia to join that consensus, make the right choice and pull back its forces,” US assistant secretary of state Victoria Nuland told OSCE envoys in Vienna.

The Russian central bank raised its key lending rate by 1.5 percentage points after the rouble fell to all-time lows against the dollar. The MICEX index of Moscow stocks tumbled 11.5 per cent to 1,278 points at 1400GMT. That meant the market capitalisation of the rouble-denominated index had fallen $58.4 billion since Friday’s close.

The east-west tension also knocked 2-3 per cent off European stock markets and sent safe haven gold to a four-month high.

Chicago wheat futures rose more than 5 per cent and corn about 4 per cent as tensions in Ukraine stoked fears of disruption to shipments from the Black Sea.

Russian gas monopoly Gazprom, which supplies Europe through Ukraine, was down 14 per cent.

 
 
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