July 7 (Bloomberg) -- Bonds of Alfa Bank, Russia's largest privately owned lender, plunged to a record after Guta Bank, the nation's No. 22 lender by assets, yesterday halted withdrawals at its branches in Moscow.

``The market is shaking with rumors about the state of health of Alfa Bank among others,'' said Piotr Piecha, a bond trader at Trust Investment Bank in Moscow.

Russian banks are facing their biggest test of confidence since 1998, when the government defaulted on $40 billion of debt, prompting many of them to collapse. This time lenders are struggling to prevent a cash crisis after the central bank in May shut down OOO Sodbusinessbank amid money-laundering accusations, sparking a squeeze on lending.

Alfa's dollar-denominated bond due 2005 fell as much as 4.5 cents on the dollar to 96 cents, before recovering to 99.5 cents, according to Deutsche Bank AG prices at 12:06 p.m. in London. They fell 2 cents yesterday.

Alfa Bank is controlled by Mikhail Fridman, Russia's sixth- richest man. Fridman's Alfa Group was among investors that last year formed the TNK-BP oil company with BP Plc, Europe's second- largest oil producer, and Russia's OAO Tyumen Oil Co. in a $6.15 billion transaction.

Russia's Central Bank Chairman Sergei Ignatiev told reporters today Alfa Bank doesn't have problems. The bank also denied it was in financial difficulties in a statement e-mailed to news agencies yesterday.

`Fulfilling Obligations'

``Alfa is fulfilling all its obligations to clients and observing all the conditions of its contracts,'' the bank said in the statement. TNK-BP, in which BP owns a 50 percent stake, isn't withdrawing cash from Alfa, the bank said.

Alfa is bringing four times as much cash to its automatic teller machines than usual and will extend the working hours of its branches to 9 p.m. as of tomorrow, bank executives said in another statement today.

Guta Bank yesterday halted withdrawals after clients pulled out 10 billion rubles ($344 million) last month. The bank is the financial arm of Guta Group, whose holdings include travel agencies, confectionary producers, an engine maker, insurance companies and Moscow's Savoy hotel. Its founder, Yuri Guschin, 59, is Russia's 79th-richest man, according to Forbes magazine.

``Guta bank will be restored,'' Ignatiev said in a speech to parliament. ``There is no banking crisis and there are no problems at other banks,'' he told reporters afterward.

Sberbank

Bonds of other Russian banks fell, including OAO Sberbank, Russia's largest state-controlled lender. Sberbank's dollar- denominated note due 2006 slumped 0.65 cents.

Moscow-based Nomos Bank's dollar bonds maturing 2007 dropped 4.5 cents, Petrocommerce Bank's dollar bonds due 2007 fell 0.75 cents, and Ural-Siberian Bank's dollar bonds due 2006 declined 1 cent.

``Banks didn't know who was going to be next to come under pressure from the central bank and that is why we are experiencing the current situation,'' said Andrew Keeley, a banking analyst at Renaissance Capital in Moscow.

The Russian government's benchmark dollar-denominated bond due 2030 dropped 0.75 cents to 91.4.

To contact the reporter for this story: Todd Prince in Moscow at tprince2@bloomberg.net.

Last Updated: July 7, 2004 08:15 EDT