The Kremlin stayed silent yesterday over the arrest of Russia's richest man, Mr Mikhail Khodorkovsky, ignoring protests from outraged politicians and tycoons who demand he be cleared of grave fraud charges and released from a notorious Moscow jail.

Mr Khodorkovsky, an oil baron and financier of the Kremlin's liberal opponents, was seized on his private jet by armed agents on Saturday, and flown from Siberia back to Moscow to face accusations of involvement in $1 billion (€848 million) of tax evasion and fraud. His arrest was a stunning escalation of a row between Mr Khodorkovsky's Yukos firm, Russia's biggest oil firm, and prosecutors who have already charged a shareholder with fraud and one of its security chiefs with murder. Analysts said they feared the development could have negative repercussions for the Russian economy.

Mr Khodorkovsky, estimated to be worth $11 billion, has denounced the onslaught as a grab for power by hardliners in the Kremlin and security services, who have gained influence since former KGB agent Mr Vladimir Putin became Russian president.

"I am not sorry about anything that I've done," Mr Anton Drel, a lawyer for Mr Khodorkovsky, quoted him as saying after his arrest. "Nor am I sorry about what's happened today."

In a statement, Yukos condemned the charges brought against its chief, who could legally be held until December 30th pending the results of an inquiry. "Yukos believes the accusations presented by the prosecutor general's office against Mikhail Khodorkovsky are absurd," the statement said.

As Mr Khodorkovsky was sent to a Moscow jail on Saturday night, opposition and business leaders demanded Mr Putin quash the spiralling Yukos case or risk scaring away foreign investors and driving Russian magnates and their money abroad.

Mr Alexander Vershbow, US ambassador to Moscow, said the case against Mr Khodorkovsky could endanger Russia's improving investment climate.

"I think, after these events, foreign companies working in the Russian market and potential investors will have new doubts," he said, adding that Washington was worried by the appearance of "Russia law being applied selectively."

The arrest of Russia's richest businessman looked set to trigger a sell-off of stocks and bonds today and may lead to capital flight from Russia if his oil company is later seized, according to some commentators.

"There will be a dramatic stock decline, not just a correction. The head of Russia's biggest public company is under arrest and this company is responsible for 30 percent of market turnover," said Mr Bulat Karmov, at Aton Brokerage.

Others said the rouble, which has strengthened in recent weeks after Russia was awarded investment grade by Moody's Investors Services on October 8th, may also weaken.

"We will see a significant sell-off of bonds and equities. The latest rouble appreciation is over for now," said a market strategist who asked not to be named.

Mr Putin - who faces parliamentary elections in December and a presidential vote in March - has said nothing so far. - (Additional reporting Reuters)