Russia reserves drop past $500 bln as rescue takes off

By Gleb Bryanski

MOSCOW (Reuters) - Russia's gold and foreign exchange reserves fell below the $500 billion (305 billion pound) mark for the first time in eight months, data showed on Thursday, suggesting the Kremlin's cash is starting to flow into the economy.

The central bank data showed reserves fell $31 billion in the week to October 24 to stand at $484.7 billion. Traders told Reuters the central bank spent only $13 billion propping up the rouble during the last week.

"A stunning one-week drop, more than twice the fall in the previous weeks," said Anna Zadornova from Goldman Sachs.

The rating agencies are closely watching Russia's reserves, which are dwindling as the central bank burns foreign currency in daily market interventions. Many analysts say such policy is unsustainable and Russia will soon devalue the rouble.

Credit ratings agency Standard & Poor's, which cut Russia's outlook to negative from stable last week, warning of the costs of bailing out troubled banks and a rising risk of a budget deficit, declined to comment.

"The drop in reserves corresponds to a potential drop in the total foreign debt, so I do not see a drama there," said Yevgeny Nadorshin, analyst at Trust Bank.

The euro, which accounts for about 40 percent of Russia's reserves, weakened by 6 percent against the dollar, which accounts for about 49 percent. Sterling, which makes up about 10 percent of reserves, also weakened versus the U.S. unit.

That also contributed to the fall of reserves, whose total value is calculated in dollars.