* Rouble pressured by capital outflows
* Analysts say Russia "out of fashion"
* C.bank FX policy plays against rouble assets
By Andrey Ostroukh
MOSCOW, Dec 2 (Reuters) - The rouble faces a tough time as inflation erodes returns, capital outflows surge and the central bank slackens its reins, making Russia the odd one out among emerging markets who are waging a war against currency strength.
Low interest rates, high inflation, lacklustre growth, corporates' acquisitions abroad and foreign debt repayments, a broken-down correlation with oil and rising imports are all factors pressuring the rouble -- and here to stay for now.
"We still expect the rouble to weaken through to year-end. The main argument for this is the problem with capital outflows. It is the factor which keeps on driving the Russian forex market," analysts at Troika Dialog said in a research note.
In a few weeks this autumn, the rouble lost all its 2010 gains to hit its weakest level so far this year of 36.42 against the euro-dollar basket. Some $21 billion left Russia between January and October.
Russia's trade surplus is shrinking; exports increased just 13.8 percent year-on-year during that period, while imports rose 27.3 percent, fanned by improving domestic demand and food purchases following a summer drought that killed one-third of the harvest. Analysts now see little room for a surge in exports unless oil prices soar towards $100 per barrel.
The trade surplus is expected to shrink by nearly a fifth in 2011 to $115 billion, according to a Reuters poll.
Foreign debt redemptions are another factor weighing on the rouble, with Russian banks and companies due to pay back more than $25.5 billion in November-December.
Pressure also comes from corporate acquisitions abroad, such as TNK-BP's $1.8 billion purchase of oil and gas fields in Vietnam and Venezuela.
SMALL RETURNS, WEAK DATA
Russia can offer little premium to investors as inflation accelerates, while the central bank keeps interest rates at record lows to revive lending.
Nominal yields on Russian financial instruments remain at relatively high levels, but in real terms, inflation erodes returns from holding Russian debt to almost zero.
Consumer prices have risen 7.4 percent so far this year, inching close to the central bank's 7.75 percent benchmark refinancing rate.
With average yields on the most liquid corporate bonds, such as gas behemoth Gazprom and railroad monopoly RZhD, at around 7.5 percent, potential returns are limited for investors using low-yielding dollars and euros to fund carry-trade positions in Russian assets.
"Such operations have become less attractive now due to the decrease in bond yields. Moreover, short-term currency risks have increased," said Dmitry Kharlampiev, analyst at Petrocommerce bank.
The central bank has moved to discourage short-term capital inflows, such as carry trades, allowing more flexibility in the rouble and changing the pattern of interventions. That suggests the currency will be increasingly vulnerable to external and internal shocks.
Lacklustre growth offers little help, with Russia's economy growing 2.7 percent in the third quarter -- a weak result compared to other emerging markets.
The data is "a negative development for the local equity markets and the rouble, as it calls for greater monetary support from the authorities, even despite the continued acceleration of inflation," Vladimir Osakovsky, economist at Unicredit, said.
OUT OF FASHION
As a result the rouble has not benefited from the increased level of global liquidity seeking a home after the Federal reserve announced the second round of quantitative easing.
"More obvious places to invest ... are Turkey, Brazil, India," said Roman Pakhomenko, chief dealer at Lanta bank.
The Brazilian real has added 0.9 percent against the dollar year-to-date, while the Indian rupee has gained 1.3 percent. The rouble has lost 4.0 percent.
"The rouble was the worst performer among commodity currencies and was also lagging among BRICs, as capital flows into Russia remained negative," said Paul Biszko at RBC Capital.
The pile-up of anti-rouble factors has led to a breakdown of the correlation with oil -- Russia's major export and once a key support for the currency, the price of which has held above $80 per barrel for almost three months.
As a result, analysts and markets alike have turned more bearish on the rouble. The latest Reuters poll showed it at 35.30 versus the basket by year-end compared with late April forecast of 33.48 and the present rate of 35.90.
Implied yields of three-month non-deliverable forwards for the dollar versus the rouble rose to their highest levels in six months, 4.2 percent, in late November, up from 3.0 percent seen before the rouble's slump started in mid-September.
"Russia is out of fashion today," deputy chief executive of Russia's biggest lender Sberbank, Bella Zlatkis, said in mid-November after meeting with international investors. (Editing by Ruth Pitchford and Catherine Evans)