A steady stream of bad news sent the markets tumbling last week, and one of the few bright spots -- when investors latched onto a report Friday that Mikhail Khodorkovsky had been granted parole -- turned out to be false.

The MICEX fell 5.9 percent to 1,374.69 points over the week, while the RTS slipped 4.7 percent to 1,702.61 points. The markets have fallen more than 30 percent from their May highs.

The MICEX's worst fall, of 5.2 percent, came Tuesday, as oil and gas stocks took a battering from falling global oil prices and banking stocks were caught in the fallout from the crisis at Fannie Mae and Freddie Mac.

Investors were worried about the continuing TNK-BP dispute, the Mechel pricing affair and the ongoing troubles faced by William Browder's investment fund Hermitage Capital, whose lawyers last week had their offices raided by police.

Another unpleasant revelation came from the Central Bank, whose international reserves fell $16.4 billion after it propped up the ruble at the height of the war in Georgia.

Russia portfolio funds were down for the eighth straight week, but the figure -- $23 million -- was far less than the nearly $500 million of outflows in the weeks of the Mechel affair and the start of the Georgia war, according to EPRF Global.

The overall effect of the "crescendo of bad news" over the last few weeks has been of a "long, hard summer," said Erik de Poy, equities strategist at Alfa Bank. "But Russia's like a prize fighter who's been knocked down yet will get back up and beat the count."

The critical test for foreign investment will come in early September, when investors re-examine their portfolios, said Chris Weafer, chief strategist at UralSib.

"At that time, it's very important that the investment case for Russia is there," Weafer said. "Any bad news in the next couple of weeks would add fuel to the funeral pyre of investment sentiment."

Kingsmill Bond, chief strategist at Troika Dialog, said in a research note Thursday that it would "take more than the passage of time and the usual September rally" for the market to get back to fair value.

Equity would continue to be expensive "until relations improve between Russia and the West, significant progress is made on legal reform, yields drop globally or major pension reforms are enacted," Bond said.

The best news for investors would be more tax cuts for the oil sector in September, the three analysts said.

Among cheap stocks, Weafer picked out Gazprom, saying that despite rising costs, it had gained influence as a Caspian energy supplier out of the Georgia conflict. Sberbank also looks very inexpensive compared with Western banks, he said.

Both Weafer and De Poy said stocks unaffected by the commodity cycle or by government price-fixing would be among the safer bets.

Telecoms firms Mobile TeleSystems and VimpelCom and utilities such as RusHydro are good plays, while export-driven fertilizer producer Uralkali was largely untouched by domestic price controls, Weafer said.

One jump in stock prices, on Friday, came as the result of an erroneous Interfax report that jailed tycoon Khodorkovsky had been granted release. In the few minutes before it was corrected, markets rose 1.6 percent.

Weafer said the jump was not about Khodorkovsky. "Investors are just looking for a sign that the government cares about them, so they can think: 'They do love us, after all,'" he said.