Sept. 12 (Bloomberg) -- Russian stocks fell for the first time in three days after President Vladimir Putin dissolved his government and named a new prime minister. VTB Group and OAO Lukoil paced declines.

The ruble-denominated Micex Index lost 0.8 percent to 1,635.69 after earlier gaining as much as 0.5 percent. Four stocks advanced, 25 retreated and one was unchanged. The dollar- denominated RTS Index fell 0.6 percent to 1,899.95.

Putin dismissed the government as Prime Minister Mikhail Fradkov resigned. He later nominated Viktor Zubkov, head of the country's money-laundering watchdog, to become the next prime minister. The lower house of parliament will vote on the nomination as early as Sept. 14.

``It's not a surprise that markets are falling on the uncertainty,'' said Chris Weafer, chief strategist at UralSib Financial Corp. in Moscow. ``The question of political succession and the identity of Putin's successor has been a major drag on the market all year.''

VTB, a state-controlled bank that went public in the world's biggest initial public offering this year, dropped 2.2 percent to 10.86 kopeks on the Micex Stock Exchange. Investors see VTB shares as ``toxic'' because the government hasn't supported its stock price ahead of the parliamentary and presidential elections, said Julian Rimmer, head of sales trading at UralSib.

Lukoil dropped 0.8 percent to 1,899.34 rubles. Russia's second-biggest oil company said capital expenditures jumped 42 percent in the second quarter.

Surgutneftegaz Falls

``The market still underestimates the capital-expenditure needs of the Russian oil industry,'' wrote Dmitry Loukashov, an oil & gas analyst at Moscow-based Alfa Bank, in a note. ``Profitability in the Russian oil sector is rapidly deteriorating.''

OAO Surgutneftegaz, the country's fourth-biggest oil producer, sank 0.9 percent to 31.327 rubles. The Micex Oil & Gas index retreated 0.6 percent.

OAO Transneft, the state-owned oil pipeline operator, climbed 0.8 percent to 40,887.46 rubles. Chief Executive Officer Semyon Vainshtok will quit and take over Russia's preparations for the 2014 Winter Olympics.

``Investors believed that Vainshtok saw his role more as a civil servant than a corporate boss answerable to minority shareholders,'' UBS AG wrote in a note to investors. ``His departure could lift Transneft's shares in the short term.''

Sibir Energy Plc, a U.K. company that producers oil in Russia, fell 2.8 percent to 536 pence at 3:22 p.m. in London. Goldman, Sachs & Co. initiated coverage of the stock with a ``sell'' recommendation and a price estimate of 440 pence.

``The market mistakenly believes the company's expected production levels will be sustainable,'' Goldman analysts wrote in a research note.

To contact the reporter on this story: William Mauldin in Moscow at wmauldin1@bloomberg.net

Last Updated: September 12, 2007 10:43 EDT