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Traders work on the floor of the New York Stock Exchange at the start of the trading day March 3, 2014, in New York. / JUSTIN LANE, EPA

One opponent Russian President Vladimir Putin didn't count on for his Ukraine power grab was the markets.

Market retaliation for the Russian takeover of the Crimea was swift and unpleasant for the Russians, and may account for Putin's assurances that military force would be a last resort in the Ukraine - which, in turn, powered a 227.85-point gain in the Dow Jones industrial average Tuesday.

Markets largely ignored the Russian invasion of Georgia in 2008, in large part because of the ongoing financial meltdown in the united States. That may have given Putin the mistaken impression that markets would similarly shrug off the incursion into the Crimea."Russia is not immune to the opinion of the business community," says Russ Koesterich, global chief investment officer for BlackRock.

Russia got slammed repeatedly Monday. True, the Dow Jones industrial average fell 153 points, or 0.9%. But that's nothing compared with the Russian market's tumble of nearly 13% - the equivalent of 2,612 Dow points. The Russian market rebounded 5.3% Tuesday.

Financial markets also clobbered the Russian ruble, which suffered its biggest plunge in 29 months. A weaker currency makes foreign goods more expensive to Russians.

The hurting didn't stop there. To shore up the ruble, Russia's central bank had to hike interest rates by 1.5 percentage points. Higher rates make Russian investments more attractive to investors, thus supporting the ruble, but those same high rates will slow the growth of the Russian economy.

The economic pressure on Russia is especially painful in an environment where the fiscal picture is more strained than it was 10 years ago, Koesterich says. Russia's gross domestic product grew 1.9% in 2013 vs. 3.4% in 2012, according to Russia's Federal Statistics Service. It's the country's worst economic performance since 2009.

More important to Putin than the economy and Russian stock market is the likely threat of business losses to the Russian oligarchs - business titans who control many of the country's key industries. Part of Putin's job is mediating disputes between the oligarchs - and their support is vital to his rule.

Russia does have market weapons of its own - most notably, vast amounts of natural gas and oil that account for nearly 30% of Europe's energy consumption. And that weapon may well account for Europe's muted response to the Ukraine crisis. But Russia depends on its energy revenue, and it's unlikely that Putin would play the energy card quickly. "The crisis won't be a threat to Europe," Koesterich says, "unless they start blowing up gas pipelines."



Copyright 2014 USATODAY.com

Read the original story: Markets punished Putin over Ukraine intervention

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