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Russia Stocks Drop First Day in Five as Oil Falls on Europe Woes

July 5 (Bloomberg) -- Russian stocks tumbled for the first day in five as oil dropped and European Central Bank President Mario Draghi said downside risks to the economy remained, outweighing monetary easing from China and the U.K.

The Micex Index declined 0.6 percent to 1,435.76 by the close in Moscow after gaining as much as 1 percent earlier. OAO Tatneft, a Russian oil producer based in the Tatarstan region, rallied to a three-month high, adding 2 percent, after Moody’s Investors Service raised its credit rating to one step below investment grade. VTB Group, the country’s second-largest lender, fell 3.1 percent after posting a net income drop.

Crude oil retreated as much as 1.3 percent in New York. Oil and gas contribute about 50 percent of Russia’s state revenue. Draghi said “heightened uncertainty” was weighing on confidence, pushing the ECB to cut interest rates to a record low. The Bank of England restarted bond purchases two months after halting its expansion of stimulus, and China cut benchmark interest rates for the second time in a month.

“The policy easing helps with some of the symptoms but there is still weak economic data around the globe, which easing can’t resolve,” Neil Shearing, chief emerging-markets economist at Capital Economics Ltd. in London, said by phone. “The cut in the Chinese interest rate wasn’t anticipated, it suggests a deeper level of concern.”

RTS Falls

Russian stocks rallied earlier as China unexpectedly cut rates and allowed banks to offer bigger discounts on their lending costs, stepping up efforts to reverse a slowdown.

VTB slipped after reporting net income dropped 13 percent in the first quarter to 22.7 billion rubles ($700 million).

The dollar-denominated RTS Index slid 1.4 percent to 1,388.07. MSCI Inc.’s emerging-market gauge traded little changed.

Russia’s benchmark index, which has added 2.4 percent this year, trades at 5.3 times estimated earnings. That compares with 9.7 times projected earnings for MSCI’s emerging-market gauge, which has gained 4.3 percent this year.

Russia’s equities trade at the cheapest valuations among 21 emerging markets tracked by Bloomberg, reflecting concern the country is too reliant on energy exports.

To contact the reporter on this story: Ksenia Galouchko in Moscow at kgalouchko1@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net

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