Russia's nascent and chaotic financial markets have been living up to their reputations in the past several weeks, serving up a contradictory array of large interest rates drops, sharp ruble declines and big inflows of foreign capital.


Among the highlights:


?The ruble, which fell by 20 points Monday to 2171, has lost 5.3 percent of its value against the dollar already this month, more than all of July, and the currency looks headed for its worst decline since March as a result of hefty government credits to industry and rising inflationary fears.


?Interest rates at the government's three-month treasury auction on Tuesday fell by more than 24 percentage points. While this was said by brokers to be a result of heavy Central Bank buying on the market, the bank has denied taking part.


?Stock prices of oil and aluminum companies increased by 30 to 40 percent in a single day, driven by overseas investors.


?The price of Vneshekonombank bonds rose sharply, also driven by a large influx of foreign capital.


As usual, there is no single factor to explain these seemingly contradictory movements. What does unite them is that all the markets are small and easily manipulated by only a handful of big players.


This often means that Russian markets move in the opposite direction of what would be expected in the West. For example, interest rates have been falling at time when most economists are predicting higher inflation. Such predictions generally lead to falling bond prices, yet Russian bond prices have risen dramatically in the past week.


The fall of the ruble rate seems to be the starting point from which many of the markets are taking their cue. President Boris Yeltsin signed a decree last week ordering the Central Bank to allot 3.5 trillion rubles in credits to various sectors of the economy and some of this money has already found its way onto the market, according to Vadim Yegorov, spokesman for the Moscow Interbank Currency Exchange.


Ruble holders typically convert government credits to dollars to protect against the ruble's devaluation. These dollar purchases exacerbate the currency's decline.


The small market for ruble futures reached near panic levels last week as a result. Daily futures volume on the Moscow Commodities Exchange was nearly double the July average and an October contract increased to 2,428 to the dollar from 2,349 the previous week.


Inflationary fears were said to be behind the panic. Economists are now saying inflation could be around 10 percent in September, from about 5 percent in July, and currency holders fear the ruble's decline will match the inflation rate.


But another factor behind the ruble's decline is that the influx of money from government credits had nowhere to go except into dollars.


Traders complained that the primary government bond market, which usually attracts a large portion of liquid funds, was effectively taken over last week by the Central Bank. They said that the Central Bank, acting through Unikombank and Sberbank, the state savings bank of which it is a majority holder, bought most of last Tuesday's 600-billion-ruble primary issue of three-month treasury bills.


The banks made low bids, shutting out other institutions, and forced down interest rates by a dramatic 24.13 percentage points, said Anton Zavyalov, a dealer at the commercial bank Optimum.


The Central Bank denies participating in the primary market, which would constitute a breach of its agreement with the Finance Ministry not to buy bills in the primary issue. Konstantin Korishinko, deputy head of the Central Bank's securities department, said at least 10 banks took large stakes in the 600-billion-ruble offer but he declined to name the banks.


At the same time, the fall of interest rates is in line with the Central Bank's policy of reducing the rate at which it lends to commercial banks.


The Central Bank cut its refinancing rate to 130 from 150 percent Monday, and bank officials have predicted that the rate could reach 110 percent by the end of the year.


The movements in the ruble and t-bill markets seemed not to influence demand for over-the-counter stocks and "Taiga" bonds, a dollar-denominated security that the government issued to pay back holders of accounts in the failed Vneshekonombank.


On Thursday, brokers hiked prices of Russia's newly privatized oil and aluminum companies by 30 to 40 percent, according to the Skate Press Consulting Agency. The oil company Komineft, for example, jumped by 8,000 rubles to 29,400. Skate Press attributed the gains to heavy buying by foreign investors.


Zavyalov said foreigners pumped tens of millions of dollars into the Taiga bond market, pushing down yields and forcing up prices.


"Everybody made a lot of money," Zavyalov said, naming such Western companies as Morgan Grenfel, CS First Boston, Continental Bank, New Alliance Group and Indosuez Bank as heavy buyers.


The general conclusion among these Western investors has been that many Russian assets are highly undervalued and for that reason they tend not to be overly concerned with movements in the currency and interest rate markets.