Washington, Oct 28: The United States warned yesterday that the prosecution on fraud charges of Russian oil tycoon Mikhail Khodorkovsky would damage Russia's standing among potential foreign investors as it created doubt about the state of the rule of law there. The State Department, echoing comments from US diplomats in Moscow including ambassador Alexander Vershbow, said the weekend arrest of Khodorkovsky, Russia's wealthiest man, raised questions about the application of the law.

"We're mindful of the implications for the rule of law and the development of a healthy and transparent business and investment climate in Russsia," spokesman Richard Boucher said. "We're concerned at the escalation in the confrontation with Yukos but we're not in a position to comment on the specific legal aspects of the case," he told reporters.

"Nonetheless, recent events do raise questions as to whether the law is being applied selectively and naturally these events raise doubts on the part of companies doing business in Russia and among potential investors," Boucher said. "We're concerned about the potentially negative implications for the rule of law in this case," he added.

The tycoon's arrest, which caused the Russian Stock Market to plunge yesterday, "has broader implications in terms of the politicisation of the legal system and creating a totally unpredictable playing field for other big businesses in the coming period," a senior US diplomat said earlier yesterday in Moscow. Bureau Report