The government will provide a further $50 billion to increase liquidity in the banking system and fight the "contagion" that has spread from the United States, Prime Minister Vladimir Putin said Monday.

The money will be made available to banks and companies to help them pay foreign loans taken out before Sept. 25 and will be transferred from the country's international reserves to the state-run Development Bank, Deputy Economic Development Minister Andrei Klepach said on Vesti-24 television.

"American authorities have not been able to handle the economic problems and the obvious financial crisis" in the United States, Putin told government officials, the government's web site said. "Once again we can say with regret that the contagion has moved into the European financial system."

The liquidity boost comes in addition to a $130 billion crisis package comprising loans to banks, tax cuts and delayed tax payments. The government was forced into action by investor flight triggered by last month's five-day war in Georgia, a drop in commodity prices and the seizure in global capital markets after the bankruptcy of Lehman Brothers.

"Psychologically, this is very much needed," said Natalya Orlova, chief economist at Alfa Bank. "It will help restore confidence in the interbank market."

The MosPrime overnight rate rose to 7.8 percent Monday from a two-month low of 4.3 percent on Sept. 24.

The MICEX Index dropped the most Monday since regulators closed stock markets on Sept. 16, led by Sberbank, on concerns that more European banks may fail, with repercussions on liquidity and borrowing costs in the country. The MICEX fell 5.5 percent to 1,019.6 points by close of the day, while the RTS shed 7.1 percent to settle at 1,194.1 points. (Story, Page 7.)

Putin presented other proposals for bolstering the banking sector, including allowing the Central Bank to offer loans to banks without the need for collateral.

"This is also a very important measure as, at the moment, only 28 banks can get funding without collateral through Finance Ministry auctions," Renaissance Capital said in a note to investors late Monday. "However, these banks are either reluctant to lend on, or have fully utilized their limits at these auctions."

The Development Bank, also known as Vneshekonombank, should receive 75 billion rubles in budget funds to bolster its capital this year, Putin said.

"Any Russian bank or company can apply to Vneshekonombank to receive a loan to pay debts to foreign creditors on loans taken before Sept. 25 this year. The terms of the loan must, of course, be market-based,'' Putin said.

The Development Bank last week swooped in to rescue troubled lender Svyaz Bank. The government will give the Development Bank $2.5 billion to keep Svyaz Bank solvent, RIA-Novosti reported Monday, citing Putin's deputy chief of staff Mikhail Kopeikin. The money will cover Svyaz Bank's debt, Kopeikin told reporters in Geneva.

(Bloomberg, AP, MT)