By Rachel Nielsen

Washington and Beijing played the leading roles in last week’s downturn on the Russian stock markets, and though the West delivered more theatrics, the East was widely credited with the performance of note.

Adding to the drama, there was some evidence of profit taking after a strong performance to start the new year.

U.S. President Barack Obama’s get-tough approach on banking, seen by some as a populist play in the aftermath of a string of political setbacks, pushed down global markets on Thursday and Friday. But the stage and the mood already were set for losses Wednesday, when China announced that it was moving to curb lending and tighten bank controls — a move based on worries that excess cash could spur inflation.

For the week, the ruble-denominated MICEX Index was down 2.9 percent, closing at 1410.38, and the dollar-denominated RTS Index was down 4.5 percent, finishing at 1489.46.

Obama said he wanted to limit the investment activities and size of banks, which had investors fretting that profits at U.S. financial corporations could shrink and the amount of capital available for investments could contract.

“We have to enact common-sense reforms that will protect American taxpayers and the American economy from future crises,” Obama told reporters Thursday.

Sberbank dipped 3 percent Friday and 1.8 percent for the week, while VTB shed 3.9 percent, sending it down 4.7 percent for the week. But analysts said Obama’s plan and U.S. economic indicators were not going to remain a big concern for Russia.

“They’re all short-term drivers,” said Kingsmill Bond, chief strategist at Troika Dialog.

He stressed that oil was still the key driver for the Russian market. “Right now the oil price is following the U.S. market,” but Asian growth leading to higher prices for oil is ultimately the stronger driver for Russian markets, he said.

Spot prices for Urals crude slid 3.6 percent Friday to close in Moscow trading at $71.19 per barrel, down 6.4 percent on the week.

And if the U.S. economy was big news for the Russian bourses, China will only get bigger. Some analysts said they thought that following developments in China was even more important for accurate stock watching than keeping an eye on the American markets.

China reported 8.7 percent growth in gross domestic product for 2009 on Wednesday, but it also announced a $300 billion reduction in bank lending and other limits on liquidity.

Liu Mingkang, the Chinese Banking Regulatory Commission chairman, said the country’s banks were expected to reduce lending to 7.5 trillion yuan ($1.1 trillion) in 2010, from an anti-crisis stimulus level of 9.5 trillion yuan in 2009.

He also said steps were taken against banks that were extending too much credit or making bad loans, adding that “new leverage and liquidity restrictions would be imposed,” The Associated Press reported. Earlier this month, major banks in China were told to increase their reserve ratios, while China’s central bank increased some interest rates.

The result was investor fear of a reduction in China’s economic expansion, resulting in less demand for metals, oil and other raw materials — that is, Russian exports.

All eyes, then, will be on whether the booming economy actually does slow. With fourth-quarter GDP growth of 10.7 percent, China is poised to become the world’s second-largest economy later this year. It would unseat Japan, which in December revised downward its third-quarter growth to 1.3 percent, raising anew the question of whether the United States or China is more important for Russia.

Some analysts also saw profit taking as investors were eager to turn their gains on paper into real money.

“This negative news from the U.S. and China just coincided with some investors adjusting their portfolios,” said Renaissance Capital analyst Ovanes Oganisian. He said the process had begun in December.

Mark Rubinstein, deputy head of research at Metropol, also said investors recouping their money was the real mover. Last week, “profit taking was expected all across the board,” he said, especially in metals and mining — which did play out Friday.

Among the biggest losers was Novolipetsk Steel, which fell 3.4 percent after Goldman Sachs Group changed its recommendation to “sell,” Bloomberg reported. Severstal escaped the bank’s broader downgrade on the industry, gaining 1.6 percent after it was raised to “buy.”

The move to cash out of Russia also appeared to be a factor behind the latest numbers from fund tracker EPFR Global. Inflows for Russia equity funds were just $51 million for the week ending Wednesday, compared with $244.7 million in net inflows for the previous week.

EPFR data also showed decreases for China equity funds and commodity sector funds, “as restrictions on Chinese bank lending raised questions about future demand,” EPFR Global said in a report Thursday.

This year’s gains in both the MICEX and the RTS were slimmed over the past week, making room for catch-up starting Monday. The MICEX had been up 6 percent for the year through Jan. 15, but now is up merely 3 percent for the year, while the RTS nose-dived from a 7.9 percent gain through Jan. 15, to an increase of just 3.1 percent.

Whatever the outcome of this week, the past five trading days made one thing clear: The United States may be making a lot of noise in Russian markets, but it is China that investors really should be listening to.