The latest downturn in the rouble and the Russian stock market had a predictable effect on international stock markets, with most losing almost all the gains they had notched up during Tuesday's tentative recovery.
And the fall-out from Moscow has now spread to other emerging economies, with markets in South America and eastern Europe taking a beating.
But there were indications from Wall Street last night that US investors may now be taking a a calmer view of the Russian crisis, with some analysts believing it created more fear than real problems for the US economy. This doesn't seem to be as significant to us economically as it is politically," Mr Jim Benning, a trader at BT Brokerage, said of Russia's trouble.
After opening down over 135 points, the Dow staged an afternoon recovery before closing up/ down......
The main European markets all fell heavily, while the Irish market was over 1 per cent lower although trading volumes in Dublin were low as potential overseas buyers displayed little interest in the offers of stock from domestic institutions.
London stocks nose-dived due to a poor reception for the Russian debt restructuring plan and a drop
of Asian markets, followed by the weak Wall Street opening. The FTSE-100 index was down by 109 points or 1.93 per cent to 5,545.4 points, having been off by as much as 136 points in late morning. Russia's woes came back into the forefront of investor concern following new Prime Minister, Mr Viktor Chernomyrdin's announcement of a restructuring of $33 billion (£23.8 billion) of government debt that would grant investors in the paper just 30 cents on the dollar on average. Analysts said the unilateral plan was highly unfavorable to investors and could worsen already low confidence in the economy and the rouble. Paris share prices fell sharply as did the Frankfurt stock market with the DAX index plummeting by 2.6 per cent exactly and cancelling out Tuesday's rise. "After technical rallies on Monday and Tuesday, reality has returned to the bourse," said one broker. And another said: "People are very nervous. The situation in Russia is bad, and I still think the DAX will fall below 5,000 points - even well below."
Shares in Deutsche Bank, Germany's largest, fell 6 per cent in Frankfurt, with Dresdner Bank and Commerzbank also suffering falls.
US ratings agency Standard & Poor's also lowered its long-term credit rating for Deutsche Bank to AA+ from AAA, citing concern over the bank's profitability and cost structure. But it said its exposure to Russia and Asia was "manageable'.
Russian turmoil also had a severe effect on emerging markets. Traders said investors could pull even more money out of emerging market equity and debt markets to cover their losses as a result of the Russian debt restructuring.
In Brazil, stocks tumbled for the sixth straight session as investors dumped emerging market stocks amid heightened concern that the country could be more vulnerable to a speculative attack or a flight of capital. "The knee-jerk reaction goes straight from Russia to Brazil," said one analyst. The root of Russia's problems stems from its fiscal account, like Brazil."
Sao Paulo's key Bovespa index slipped 2.28 per cent to 7474 points in light trading, bringing losses this month close to 30 per cent. In eastern Europe, the Hungarian central bank intervened to support the forint as eastern European currencies battled a wave of volatility and investor nerves. The Polish zloty and the Czech and Slovak crowns also lost ground throughout the day, but traders said that while market sentiment overall was bearish, the central European currencies should weather the storm in the end on strong fundamentals.
