The Central Bank brought the ruble out of a nosedive Tuesday, raising it 10 points against the dollar, but dealers said the effort cost the bank a staggering $300 million in a day of heavy trading that could signal the end of a calm summer for the currency.


Both the extent of the Central Bank intervention and the volume of trading on the exchange Tuesday were unprecedented, leaving currency traders surprised at the ruble's resurgence but pessimistic about its future strength.


"The currency market is seriously destabilized at the moment," said Igor Doronin, a currency expert at the Moscow Interbank Currency Exchange, adding that he expected the market to heat up further towards the end of the month.


The ruble gained 10 points to close at 2,161 to the U.S. dollar, after falling 20 points Monday to a record low of 2,171. Net trading volume, which had never before broken the $200 million mark and remained well below $100 million all summer, jumped to a record $313.3 million.


Dealers said the Central Bank was flooding the market with dollars to prevent a collapse in the ruble. Some estimated that the bank spent more than $300 million defending the currency on Tuesday alone.


"We were facing massive Central Bank intervention and all of the money being offered for sale comes from the Central Bank," said one trader. "The bank has enough money to keep the exchange rate high but I do not know how long it will last."


"We are slightly at a loss," said Rinat Mukhametshin, a trader at Toribank. "We came here on the expectations of a ruble fall and the opposite happens."


Until this week, the ruble appeared to have settled into a relatively predictable devaluation against the dollar, leading businesses to put more faith in the Russian currency and making ruble-denominated securities more attractive. The Central Bank's intervention amounted to minor tinkering that kept the ruble's fall in line with monthly inflation.


Now, however, economists predict that increased government spending and big credits to ailing farms will boost inflation and weaken the ruble. Dealers said the Central Bank appeared to be showing the public that the ruble was not vulnerable.


"I think this Central Bank intervention was clearly aimed to show public opinion that exchange rates are not dropping sharply, that the Central Bank is capable of controlling the rate," said one trader.


"It is not impressing the banking world but it may make a good impression on the public."


Andrei Vernikov, deputy head of the Central Bank's international monetary department, declined to give figures for the bank's dollar sales, though he did say that the bank had spent "a lot of money" over the last month to support the ruble.


Doronin doubted that the Central Bank could continue to defend the ruble against a serious fall.


"To control the market solely through intervention on the Moscow exchange will be very difficult for the Central Bank," he said. "The situation is more serious than it seems if one looks only at the exchange rate. The extremely high volume shows that."


Experts attribute the ruble's fall in part to a presidential decree signed last week that orders the Central Bank to allot 3.5 trillion rubles in credits to various sectors of the economy.


Vernikov said some banks appeared to be misusing credit funds issued to industry and agriculture, selling the money for dollars, creating a ruble glut and destabilizing the money market.


"Demand for hard currency rose after the latest credit emission and I have the impression that some banks are misusing credit funds, converting credits into dollars," he said. "The three segments of our money market -- T-bills, ruble credits and ruble-dollar operations ? are closely linked. When money leaks from one segment, it is pumped into another."


Doronin said that banks, seeking to make a profit on a fall in the ruble, were taking loans on the interbank credit market and pulling funds from off-exchange currency trade to buy dollars on official exchanges.


Falling rates on the interbank credit market and lower yields on Russian securities have made the hard currency market more attractive, while dealers believed that lower Central Bank interest rates may have had an additional psychological impact on the market.


The Central Bank on Monday cut its refinancing rate to 130 percent from 155 percent, the seventh rate cut this year and the steepest one since the round of rate reductions began in April.


The rate, which works out at just over 10 percent a month under Russia's method of calculating interest rates, is still above recent monthly inflation rates of around five percent.


(MT, Reuters)