The Russian government has abandoned the sale of a stake in oil giant Lukoil - its biggest privatisation of the year.

The flotation of 6% of the country's largest oil firm was expected to raise $600m.

But the deal was pulled at the last moment, owing to poor market conditions around the world.

Analysts say the cancellation is likely to leave a hole in Russia's budget, but were encouraged that the government had not been forced to proceed at knockdown prices.

The wider picture

"Despite successful preparations including an orderbook that was oversubscribed, the current market price is not attractive to the government," the government said in a statement.

Analysts were taken by surprise at the last-moment decision not to go ahead, but saw it as a positive sign for Russia's privatisation process as a whole.

"The government seemed very intent on doing the deal and certainly put a big effort into the road show," said Loren Bough, a trader at Brunswick UBS Warburg.

Lukoil's partial flotation was part of a wider plan to raise $1.5bn through the sale of state assets.

About 450 state-owned firms and stakes in a further 600 could be included in next year's sell-off.

Lukoil will still proceed with plans to get a secondary listing on the London Stock Exchange, where its shares have been traded for the past five years in the form of depositary receipts.