Oct. 22 (Bloomberg) -- Russian stocks declined, led by oil producers OAO Lukoil and OAO Rosneft, after crude prices fell below $70 a barrel.

The Micex Index of 30 stocks dropped 21.09, or 3.2 percent, to 631.42 AS of 1:15 p.m. in Moscow, heading for the first decline in three days. The dollar-denominated RTS Index slipped 3.5 percent to 692.02.

Both measures have slumped over the past three months as the turmoil in credit markets and fallout from Russia's war with neighboring Georgia spurred investors to take about $63 billion out of the country, according to Italian bank UniCredit SpA. Oil has tumbled 52 percent from a record $147.27 a barrel reached July 11.

``The main driver of the broad Russian selloff has been the dramatic fall in oil prices,'' Beat Siegenthaler, head of emerging markets strategy at TD Securities Ltd. in London, wrote in a note to clients. ``If the gloomiest forecasts for deep worldwide recessions were to materialize, the oil price would fall and drag the Russian economy down with it.''

Crude dropped 1.7 percent to $69.68 a barrel in New York trading, after slumping 4.5 percent yesterday. Urals crude, Russia's export blend, fell 4.3 percent to $66.16 a barrel yesterday. Urals needs to average $70 a barrel next year for the country's budget to balance, according to the Finance Ministry.

Lukoil, Russia's largest independent oil producer, slid 55.44 rubles, or 6 percent, to 870 rubles. Bigger rival Rosneft declined 4.55 rubles, or 4.3 percent, to 102.20 rubles.

`Bigger Problems'

OAO Tatneft, an oil producer controlled by the Russian region of Tatarstan, dropped 1.62 rubles, or 4.3 percent, to 36.04 rubles. OAO Gazprom Neft, the oil arm of natural-gas exporter OAO Gazprom, declined 2.18 rubles, or 4.5 percent, to 46.25 rubles. OAO Surgutneftegaz, Russia's third-largest independent oil producer, sank 0.76 rubles, or 5.4 percent, to 13.15 rubles.

Oil's decline ``will continue to pile pressure on the ruble and the Russian equity market,'' UralSib Financial Corp. analysts led by chief strategist Chris Weafer wrote in a note to clients today. ``Lower oil, bigger problems.''

Lukoil was cut to ``neutral'' from ``buy'' at Goldman Sachs Group Inc. and its price estimate reduced 21 percent to $94. Goldman also cut price estimates for Rosneft, Tatneft, Gazprom Neft and Surgutneftegaz. Tatneft plans to cut investment outside Tatarstan, Interfax reported today, citing Chief Executive Officer Shafagat Takhautdinov.

Government Funds

The government was to start investing 175 billion rubles ($6.5 billion) in ``highly rated'' Russian stocks and bonds this week to help mitigate the biggest market crisis since the 1998 default, Finance Minister Alexei Kudrin said Oct. 17.

``The government plans to invest 5 billion rubles per week in order not to affect prices and this will go on for a duration of 35 weeks,'' said Kamilla Sharafutdinova, a fixed-income trader in Moscow at Trust Investment Bank. ``We don't think the government money affected prices yesterday and given that they do it in small portions it is unlikely that this will have an effect.''

The Micex gained 4.2 percent yesterday and the RTS rose 2.4 percent.

OAO Gazprom, Russia's largest energy producer, snapped two days of gains after it said the turmoil in credit markets may have an impact on borrowing and refinancing. Gazprom, which reported a record first-quarter profit today, fell 6.27 rubles, or 5.3 percent, to 111.95 rubles. Goldman also cut Gazprom's price estimate by 26 percent to $13.

The ruble fell for a sixth straight day against the dollar, falling as much as 1 percent to 26.9769 today. Russian government bonds also retreated with the yield on the benchmark 7.5 percent bond due 2030 jumping 27 basis points to 10.36 percent, a 6-year high.

To contact the reporter on this story: Emma O'Brien in Moscow at eobrien6@bloomberg.net

Last Updated: October 22, 2008 06:17 EDT