MOSCOW, Dec 31 (Reuters) - Russia's gold and foreign exchange reserves are on track for their first annual fall since the 1998 financial crisis, dented by efforts to prop up the rouble and the economy, data showed on Wednesday.
An increasing number of indicators -- from the fall in reserves to the prospects of a recession -- point to Russia being in its worst financial crisis since 1998 when it witnessed a sovereign default, a banking sector collapse and a crash in the rouble exchange rate.
The main difference is that so far, Russia still has a relatively large safety cushion of reserves.
"Because they did accumulate those reserves they don't face the same kind of crisis. Without them it would be truly dire. With them it's quite bad anyway," said Beat Siegenthaler, chief strategist for emerging markets at TD Securities in London.
The reserves, the world's third largest, fell $12.6 billion in the week to Dec. 26 to a 14-month low of $438.2 billion. They are now around $160 billion below record highs set in August.
The central bank has spent more than $100 billion in the last five months defending the rouble from downward pressured due to falling oil prices, a worsening economic backdrop, falling stock markets and investor flight from emerging markets.
Analysts estimate around $7 billion of the latest weekly reserve fall was due to currency market interventions, with the rest coming from a revaluation of assets.
The pressure on reserves has eased a little since mid-November, when the central bank began on a gradual path of rouble depreciation versus a euro-dollar basket.
After slumping by some $72 billion in October, reserves fell just $29 billion in November and around $18 billion this month.
Nonetheless, some analysts are worried about the shrinking of the cash pile, especially as falling oil prices mean some of the money will be needed to plug holes in the 2009 budget while future cash inflows will be smaller.
"They have devalued the rouble ... so definitely that has helped but they are still spending $1-2 billion per day on average which is still not sustainable," said Siegenthaler.
"Rating downgrades are a big risk, they could fall below investment grade if they don't keep a certain level of reserves, maybe around $300 billion."
The fall in reserves was among the factors cited by Standard & Poor's earlier this month, when it became the first ratings agency to downgrade Russia's rating in a decade, although it still rates the sovereign two notches above junk.
A Reuters poll last week showed reserves continuing to shrink in 2009, ending next year at $331 billion.
Public unrest due to the financial crisis has so far been very limited, but Russians are steadily shifting money out of the rouble and into foreign currency.
The rouble ends the year around 20 percent lower versus the dollar and 15 percent weaker versus the euro. (Reporting by Toni Vorobyova; Editing by Ruth Pitchford)