NEW YORK (MarketWatch) -- Russian stocks went into a freefall Tuesday, as investors continued to pull money out of the local markets on concerns over declining commodity prices and global risk aversion.

In Moscow, the ruble-denominated MICEX stock index tumbled 9.08% to finish at 1,158 points.

The dollar-denominated RTS stock index fell 7.5% to end at 1,395 points. It is down 39% this year.

More than $9.6 billion of the RTS index's market capitalization was wiped out Tuesday, according to data from the website of the Russian Trading System. The index's market cap stood at $118.36 billion at the end of trading Tuesday.

Outlook for Emerging Markets

"There is a general risk aversion going on at the moment," said Julian Mayo, London-based co-manager of U.S. Global Investors Eastern European Fund EUROX, -0.18% .

"If you combine that with falling commodity prices, that's why Russia is down," Mayo said. As of June 30, about 62% of the total net assets of the EUROX fund were invested in Russia.

The prices of oil and other commodities fell sharply on Tuesday. See Futures Movers.

The latest sell-off in Russian equities follows a string of declines in recent weeks, triggered by Russia's military conflict with Georgia, which broke out in early August and escalated tensions with the west, particularly the United States.

Oil and gas stocks, which dominate the RTS stock market, led the declines, with the RTS Oil & Gas index plunging 7.8%. Metals and mining shares also fell sharply.

For example, shares of mining giant Norilsk Nickel (MNOD) fell 12.8% on the RTS exchange.

Shares of oil major Lukoil (LKOD) fell 9.3% and state-controlled oil and gas giant Gazprom (OGZD) dropped 8.5%.

In New York, the Market-Vectors Russia ETF RSX, -0.52% , which tracks the performance of the Russian stock market, fell 9.2%.

Shares of steel company Mechel MTL, fell 13.6%. Shares of Vimpel Communications VIP, -2.52% dropped 11.1% and Mobile TeleSystems MBT, -2.61% fell 8.6%.

"The negative influence came from oil prices," said Ilya Fedotov, senior analyst at Moscow-based Veles Capital Investment Company, in emailed comments.

"Also, further closing of marginal long positions has continued, while fire was further fueled by Russia's finance minister's comment on impossibility of further tax privileges for oil companies," Fedotov said.

Russia's Finance Minister Alexei Kudrin said on Tuesday that the oil industry should not expect any more large tax breaks, Reuters reported. "As an economist, I can say that Russia has reached a line beyond which you cannot cut taxes," Kudrin was quoted as saying.

Kudrin said that the recent tax breaks for the oil industry should be enough to boost growth in crude production, according to the report.

Major exporter of commodities

Russia is a major exporter of commodities such as oil and metals. The Eastern European country has also been perceived as an increasingly risky bet following its military conflict with Georgia.

In the short term, the Russian market is being driven by sentiment and liquidity flows rather than fundamentals, Mayo said.

"We are not overly concerned because fundamentals remain very supportive in Russia," Mayo said. "The market is now trading at five times next year's earnings."

Oil prices have fallen from record highs near $147 a barrel to about $100 a barrel currently. However, Russia will continue to run current account surpluses even if oil prices fell to $70 a barrel, Mayo said.

In addition, the latest earnings reports from most Russian companies were either in line with or above market expectations, he said.

Mayo is not very worried about the rise in geopolitical risk.

"If you look at the individual stocks, you say -- are these companies being affected by what's happening in Georgia?" he said. "And the answer is clearly no. Political noise is there, but ultimately it's just that -- noise."

Russian equities have fallen sharply in recent weeks, as many investors fled the market after the war with Georgia escalated geopolitical risk. Even before the Georgia conflict, investors were put off by Prime Minister Vladimir Putin's call for an investigation of Mechel, which wiped out billions of dollars of its market capitalization, as well as the dispute between oil giant BP Plc BP, -2.80% and its Russian partners in the TNK-BP joint venture.

More broadly, investors have been worried about state interference in the economy and the protection of property rights, especially when it comes to sectors the Russian government considers strategic, such as oil and gas.

In comparison to the RTS index's 39% tumble this year, the MSCI Emerging Markets index is down 28% year-to-date.

Russian equity markets are at their lowest levels since the middle of 2006, said Win Thin, senior currency strategist at Brown Brothers Harriman in a research report.

"Some believe it is due to capital flight stemming from political tensions with Georgia and the West," Thin said. "However, we note that plunging commodity prices are also weighing on equities and the ruble."

Russia's central bank has intervened in the markets to support the falling ruble several times in recent weeks. Russia has the third-largest reserves in the world, which stood at $582.5 billion as of Aug. 29.

The Russian ruble is "fundamentally very undervalued still," Mayo said. "While sentiment may drive the currency down, we'd expect appreciation of the ruble in the long term."