Phillip Inman , Dominic Rushe in New York and Alec Luhn in Moscow. Monday 3 March Russia's financial system punished Vladimir Putin far more swiftly than western diplomacy on Monday, as the Moscow stock market suffered one of its biggest one-day falls in recent years and the rouble tumbled sharply in a first nervous reaction to the Kremlin's gambit in Crimea.

The bank was also forced to raise its main interest rate from 5. Neil Shearing, chief emerging markets economist at Capital Economics, said: Though some traders said the rout might be a momentary blip, the possibility of an economic and financial crisis may be more irksome to Putin than threats from the west.

The last two Kremlin leaders not including Putin's interim, Dmitry Medvedev — Mikhail Gorbachev and Boris Yeltsin — were politically emasculated by swingeing economic crises that effectively bankrupted the state.

State oil company Rosneft fell almost six percent. Global stock markets also suffered from spreading jitters, with the FTSE down 1. The Russian deputy economy minister, Andrei Klepach, said market "hysteria" would subside but strains with Brussels and Washington — which has threatened visa bans, asset freezes and trade curbs — would continue to weigh on the economy.

But others cautioned that Russia's adversaries in the west do not hold strong cards. If they were to impose sanctions Russia would turn off the gas, which would be a huge problem.

Investors are watching Gazprom particularly closely, as it supplies millions of European homes via Ukraine. Europe relies on the company for as much as a quarter of its gas — but Russia equally is deeply dependent on European customers for its gas income.

Gazprom's finance chief warned Ukraine that it may hike gas prices from next month, accusing Kiev of a patchy payments record, but said gas pipelines were flowing as normal at the moment. Jack Ablin, chief investment officer at BMO Private Bank, said: The impact may be felt in Europe and emerging markets but, if anything, that's likely to drive people to the US markets instead," he said.

There could be a lot of potential economic damage for Russia from this. Nigel Green, founder and CEO of financial adviser deVere Group, said: Please choose your username under which you would like all your comments to show up. You can only set your username once. International edition switch to the UK edition switch to the US edition switch to the Australia edition.

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