Russian stocks have hit a two-year low and the rouble has weakened as fighting between Russia and Georgia unsettled investors.
Russia's main share index hit its lowest level since November 2006 in volatile trading.
The central bank intervened to support the rouble, which fell 1.6%.
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'Disaster'
Russian stocks had been a top performer among emerging markets but have fallen by around 30% since the beginning of the year, and foreign investors have been pulling their money out of the country.
"The Russian government obviously found regional dominance more important than keeping global investors already shaken attitude towards Russia up," said Ulrich Leuchtmann from Commerzbank.
"For the rouble, this is a disaster."
Diplomats are pressing for a ceasefire in the conflict over South Ossetia but Russia and Georgia have accused each other of launching new attacks.
Georgia said dozens of Russian bombers were attacking targets inside its territory, including around Tbilisi.
(BBC)
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