Aug. 26 (Bloomberg) -- Russia's Micex Index tumbled to lowest in almost two years after the country recognized the independence of two breakaway regions from Georgia and commodities prices slumped.

VTB Group, Russian's second-biggest bank, plunged to the lowest level since its initial public offering last year. OAO Gazprom, the country's biggest publicly traded company, sank for a third day.

The ruble-denominated Micex slumped 3.6 percent to 1,273.01 at 3:32 p.m. in Moscow, the lowest since September 2006. The dollar-denominated RTS Index fell 5.8 percent to 1,552.85, the biggest drop among 89 equity indexes tracked by Bloomberg.

The RTS has lost 32 percent this quarter, the steepest retreat among the world's equity markets, as this month's war in Georgia and tumbling oil helped shake investor confidence. Russia recognized the independence of Abkhazia and South Ossetia from Georgia, President Dmitry Medvedev said today in televised comments. He called on other countries to follow Russia's example, risking a deepening rift with the West.

``The sentiment here remains pretty bad because of the events in Georgia,'' said Jean-Louis Tauvy, who manages $300 million at Atria Advisors Ltd. in Moscow.

VTB dropped 0.4 kopeks, or 6.3 percent, to 6.42 kopeks on the Micex Stock Exchange.

Gazprom lost 6.31 rubles, or 2.7 percent, to 226.50 rubles. Crude oil for October delivery fell as much as $2.75, or 2.4 percent, to $112.36 a barrel on the New York Mercantile Exchange.

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

Last Updated: August 26, 2008 07:38 EDT