-- The ruble dropped the most in 3 1/2 years and Russia's 30-stock Micex Index fell to a 22-month low after Prime Minister Vladimir Putin said ``war has started'' in the breakaway Georgian region of South Ossetia.
Credit-defaults swaps, a measure of bond risk, climbed the most since March after Georgia's Interior Ministry said jets bombed the towns of Gori and Kareli near the breakaway region of South Ossetia.
The ruble fell the most against the central bank's basket of dollars and euros since that gauge was introduced in February 2005. The Micex plummeted, bringing its decline this year to 28 percent after oil slid 19 percent. Russian ``volunteers'' are pouring over the border to help defend South Ossetia from Georgian forces, Putin told U.S. President George W. Bush in Beijing, according to Putin spokesman Dmitry Peskov.
``We didn't need this,'' said Ivan Mazalov, who helps manage $5 billion in shares of companies from the former Soviet Union at Prosperity Capital Management in Moscow. ``It's not going to break the Russian economy, but war is bad for investor sentiment.''
Bombings by Russian warplanes followed an attack by convoys from Russia on Georgian forces near the South Ossetian capital of Tskhinvali, Georgian Interior Ministry spokesman Shota Utiashvili said by phone today from Tbilisi, Georgia. Russia's government earlier denied the bombing claim, and the Defense Ministry accused Georgia of ``unleashing a dirty, reckless scheme.''
The dispute between the countries ``adds to bruised investor sentiment'' in Russia and is ``potentially damaging to Russia's external relations, particularly with the West,'' JPMorgan Chase & Co. wrote in a note to investors. ``Clearly a war would not support investor confidence and would further fuel the debate about political risk.''