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The dollar-denominated RTS fell by 11.5 percent to 1131.1 points, wiping nearly $80 billion from the market value of the country's leading companies in just one trading session. More than $750 billion has been lost since May.
Trade on both exchanges had to be temporarily suspended late Tuesday afternoon as shares appeared to be going into free fall. When trading resumed briefly on the MICEX, it slumped still further to 865.16 points before closing at 881.17 points, nearly 190 points off its opening level.
Russian state-controlled banks were hit particularly hard by the fallout from the collapse of investment bank Lehman Brothers in the United States, while insurance giant AIG was struggling to find rescue funds Tuesday, as the dollar lending rate doubled overnight in New York.
VTB shares fell an astounding 31.1 percent, bringing the fall in value since its May 2007 initial public offering to 77 percent, while shares lost 22.7 percent.
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Officials from the Central Bank and the ministry would "discuss further joint actions" to boost liquidity, Putin said at the start of a meeting with visiting Azeri President Ilham Aliyev.
"We have no doubts that the security cushion that was formed in the Russian economy over the past few years will work," Putin said, adding: "We are studying the possibility of using Central Bank instruments with long-term impact. We will act carefully."
Finance Minister Alexei Kudrin declined to comment Tuesday on possible state support for Russia's banks.
As global oil prices fell as low as $91 per barrel, Russian blue chip energy and metal stocks received a battering amid fears that the U.S. financial crisis could cause a weakening in global demand for oil.
State-controlled giants and fell 21.8 percent and 18.5 percent, respectively, while was down 18.4 percent and fell 10.9 percent. Oil pipeline monopoly 's preferred shares fell by 25.6 percent.
Kudrin said the federal budget would break even next year with an average oil price of $70 per barrel and that the government expected an average of $112 this year, RIA-Novosti reported.
Andrey Saiko, a spokesman for Kudrin's ministry, said he could not immediately comment on the market plunge.
Among metals shares, was down a whopping 27.5 percent, while fell 8.4 percent.
The trading of several stocks will be suspended on both exchanges for an entire day, to resume only on Thursday. The RTS suspended trading of shares of , RBK Information Systems, NizhniKamskNeftekhima and , while , , , , Rostelecom and Volgatelecom will be frozen on the MICEX board.
The MICEX last suspended trading in June 2006, while the RTS last called a timeout in November 2000, spokespeople for the indexes said.
"The stock exchange today is a one-way track, with many sellers and no buyers," said Dmitry Parfyonov, a trader with Prospect Investment.
"There's a liquidity crisis, the repo volume is increasing, the Central Bank is offering more short-term credit to cover current expenses," Parfyonov said. "All of this has combined to throw the market into a panic and push down share prices."
"The Russian stock market has become an integral part of the Russian economy as a whole," said Vladimir Matias, managing partner at Asset Capital Partners. "The effect could be devastating to some players, as it could consequently also worsen credit standings and refinancing costs for some listed large and mid-sized companies."
While the news from the U.S. hurt stock indexes worldwide, the Russian markets fell faster and deeper than most, in part because of frayed investor nerves after the recent conflict with Georgia and the economy's heavy reliance on commodities, analysts said.
"Once the RTS crossed the 1,200 level, it triggered a fresh wave of margin calls and, as most investors could not meet the call, it led to forced selling," said Chris Weafer, chief strategist at .
"There are no, or very few, buyers because of the fear of global markets and the falling oil price. To say that the market is cheap on a rating basis is totally meaningless when the dominant sentiment is fear," he said, adding: "No. Forget that. Scared witless, and the dominant emotion is one of shock."
Apart from injecting liquidity into the banking system, and using some money from the National Welfare Fund, the government can do little in the short-term other than to "pray for a floor in oil," Weafer said.
While the damage from falling stock prices might not be immediate, there is the danger that it could spread like a contagion into the broader economy.
"The $9 per barrel decline in oil prices over the last 24 hours will have an economic effect," said Ronald Smith, chief strategist at Alfa Bank. "It will make it much more difficult for the government to cut oil taxes … as the government's own revenues are being curtailed sharply."
"There is no direct effect on the economy, day to day, but the longer this goes on, the contagion will lead to a loss of confidence, leading to liquidity and insolvency problems," Weafer said.
"This would then start to hit investor confidence and capital inflows, and could lead to a falling off of consumer activity, hitting economic growth."
"These losses are like a virus," he said. "Treat it now, and you can contain it. Leave it, and it will infect the whole system."
Staff Writer Maria Antonova contributed to this report.
