The Russian foreign ministry today announced that Russia would expel four British diplomats in the latest round of the ongoing diplomatic dispute with the UK.

The British ambassador in Moscow was called to the Russian foreign ministry this morning to be told of the decision.

The British government has been bracing itself for a Russian response after the foreign secretary, David Miliband, announced on Monday that four Russian diplomats would be expelled from London.

He told the Commons the move was intended to “send a clear and proportionate signal” to Russia of the seriousness with which Britain viewed Russia’s refusal to extradite the ex-KGB agent Andrei Lugovoi to stand trial for the murder of Alexander Litvinenko.

Mr Litvinenko, a former Russian security agent who fled to Britain, died in a London hospital last November from a fatal dose of the extremely rare radioactive isotope polonium 210.

Today’s move puts the ball back into the court of the British government, which must decide whether to pursue further action.

The US secretary of state, Condoleezza Rice, insisted that Russia should not be isolated.

“There is nothing to gain by the isolation of Russia and the strategy that has been ongoing since the collapse of the USSR, [namely] to bring Russia more and more into international institutions that are founded on democratic principles, is the way to bring Russia on,” she told Sky News.

Downing Street privately believes that the Russians could extradite Mr Lugovoi if there was sufficient political will. Instead, Kremlin officials have encouraged the Russian media to blame Mr Litvinenko’s death on the exiled Russian former oligarch Boris Berezovsky and MI6.

At a recent press conference, Mr Lugovoi blamed the murder on the former prime minister Tony Blair, Mr Berezovsky and the Georgian mafia.

Yesterday it emerged that British security services had thwarted an alleged assassination attempt on Mr Berezovsky by a Russian hitman. He was apparently tailed by British agents from the moment he entered the country.

Today, the head of the Metropolitan police, Sir Ian Blair, said he was “extremely satisfied” with the investigation into the alleged plot.

Speaking about the individual arrested by police, he said: “He is no longer in the country and there was a series of decisions which I was fully aware of and fully support.”

Sir Ian said the police investigation into the alleged conspiracy has now “stopped”.

It was confirmed by the Ministry of Defence today that RAF jets were scrambled on Tuesday after two Russian aircraft were spotted heading towards British airspace.

“Two unidentified aircraft came towards British airspace. They turned round before there was an interception and before they entered British airspace,” an MoD spokesman said.

He confirmed that the two aircraft involved in Tuesday’s incident had been Russian, and said there was “nothing to suggest this was linked to any other issues”.

Mr Miliband said Mr Litvinenko suffered a “horrifying and lingering death in front of his family”, and said the manner of his murder had put hundreds of others at risk of radiation poisoning. He said police had “assembled a significant body of evidence” against Mr Lugovoi.

The foreign secretary announced a package of additional measures, including a suspension of recent efforts to speed up the visa application process for Russian citizens and changes to the way Russian government officials get visas.

He said international agreements meant Mr Lugovoi could be extradited if he left Russia.

“This is a situation the government has not sought and does not welcome. But we have no choice but to address it,” Mr Miliband told MPs.

The last such expulsions between the two countries took place in a tit-for-tat exchange in 1996 amid a spying row.

Russian prosecutors last week formally announced that Mr Lugovoi would not be handed over to the UK, on the grounds that Russia’s constitution prevents his extradition.

Japanese nuclear inspectors have identified a new radioactive leak at a power plant that was badly damaged in this week’s earthquake, compounding concerns about the safety of the country’s nuclear reactors.

The Nuclear and Industrial Safety Agency said radioactive iodine had leaked from an exhaust pipe at the Kashiwazaki-Kariwa plant in Niigata prefecture on Japan’s north-west coast following Monday’s magnitude 6.8 earthquake in which 10 people died.

The inspectors concluded that the leak posed no threat to human health or the environment, although that claim has yet to be confirmed by agency officials.

The plant - the world’s largest nuclear generating facility by capacity - will remain closed until its safety can be assured. The Nikkei business newspaper said today that it could remain inactive for at least a year, increasing the likelihood of power cuts when demand for electricity peaks this summer and casting doubt on plans to expand the nuclear power industry.

Reports of the additional leak come after the plant’s operator, the Tokyo Electric Power company (Tepco), said 1,200 litres of water containing a small amount of radioactivity had leaked into the sea and dozens of barrels containing low-level nuclear waste had broken open during the quake.

The firm was heavily criticised for failing to quickly extinguish a fire that broke out in an electric transformer at the plant and for delays in reporting malfunctions to the authorities. Yesterday it emerged that the plant may have been built on top of the fault line that caused the earthquake.

Japan’s nuclear safety commission said the malfunctions caused by the quake had not threatened the safety of the plant’s seven nuclear reactors.

“The safety of the plant was fundamentally maintained and we avoided the serious consequences of a nuclear accident,” the commission’s chairman, Atsuyuki Suzuki, said in a statement. “The list of problems announced by Tepco has no serious effect on the safety of the reactor.”

Yasuhisa Shiozaki, the government’s top spokesman, urged all of the country’s nuclear plants to speed up safety checks. “Since there was such a huge earthquake that surpassed our expectations, we need to consider future measures for quake resistance,” he said.

Japan depends on 55 nuclear reactors for 30% of its electricty and hopes to build more in the coming years.

Other companies were left counting the costs of the earthquake, which injured more than 1,000 people and left 12,000 others homeless. Toyota, Nissan, Honda, Mitsubishi and Fuji Heavy Industries have all been forced to halt production in the area due to quake damage.

For the past couple of months government officials in Beijing have tried, with limited success, an assortment of administrative, legal, and monetary measures to cool investor ardor for mainland Chinese stocks. On Apr. 27 the central bank hiked interest rates 0.27% to make bank deposits a more attractive alternative to stocks. On May 29 the government tripled the tax levied on stock trades, precipitating a four-day, 16% plunge.

However the market soon clawed back most of its losses. The problem is, mainlanders with money don’t have many investment options: They can hold bank deposits, where the return is not enough to offset inflation. They can invest in real estate, a market also at risk of overheating. Or they can buy A shares on the Shanghai and Shenzhen stock exchanges.

In another attempt to discourage investors from choosing the local equities markets, Beijing announced on June 19 that starting July 5 the government will allow local brokerages and fund management companies to invest in overseas stocks. The idea is to expand the choice of investment options for retail investors and thereby siphon off some of the liquidity pouring into mainland stocks. Mega-Listings Soak Up Demand

But you’d be hard pressed to find much proof that these measures have dampened the appetite of mainland Chinese investors. The CSI 300, an index based on the most important stocks on the Shanghai and Shenzhen exchanges, has soared 96% so far this year. Some 27 million new brokerage accounts have been opened in China since the beginning of the year.

The government now is pushing ahead with initiatives intended to tackle more directly the problem of excess liquidity in the markets by encouraging mega-listings. On June 20 PetroChina («www.businessweek.com»), the country’s largest oil and gas producer, announced it was planning an initial public offering in Shanghai that could fetch as much as $6 billion. China Mobile («www.businessweek.com») also is expected to raise several billion within the next few months.

To date some $17.3 billion has been raised by mainland companies on the Shanghai and Shenzhen A share markets since the beginning of the year, but an accelerated program of new listings could go some way toward absorbing investor demand. “This helps increase the supply of shares on the mainland to mop up excess liquidity,” says «investing.businessweek.com», chairman of Chinese equities at JPMorgan Chase («www.businessweek.com»). Underlying Problems

Indeed, if the June 26 IPO in Shanghai of «investing.businessweek.com» is anything to go by, investor demand appears stronger than ever. COSCO’s shares soared 93% the first day and climbed another 10% on June 27. So strong was demand for shares of COSCO, Asia’s largest container shipping line, that the public offering was oversubscribed 106 times by retail and institutional investors who plunked down $214 billion for $1.96 billion worth of available shares. That’s even more than the $190 billion tied up when investors tried to get shares of «investing.businessweek.com» when it raised $3.26 billion in Shanghai in April.

However Beijing’s reluctance to relinquish control over the companies it lists may blunt the effectiveness of IPOs to address the imbalance between supply and demand for shares, says Vincent Chan, head of China research at Credit Suisse («www.businessweek.com»). He points out that in the case of International Commercial Bank of China, which raised nearly $6 billion on Shanghai last year as part of a $21 billion dual listing in Hong Kong, the free float of shares available to Chinese investors amounts to just 2.7% of its share capital. “The listing of big cap stocks should not be token listings that could actually create more distortion” by creating a scarcity of tradable shares.

Frank Gong, chief China economist at JPMorgan Chase, argues that the problems of speculation and excess liquidity in the stock market will persist unless China solves underlying structural problems of a current account surplus and undervalued renminbi. As long as China continues to accumulate foreign reserves, the increased money will create an excess demand for financial assets.

However Gong does believe another measure under consideration to remove the tax on bank deposit interests could help stem the flight of money from bank accounts into the stock market. He argues that removing the current 30% tax rate would be equivalent to offering a 60 basis point increase in deposit rates, based on the existing one-year deposit rate of 3.06%.