* Allows banks to trade 10 percent off the official rate
* Forex reserves fell 20 pct in January-February
* Further devaluation or external aid needed - analysts
* Potential creditor Russia demands credible action plan
(Adds analysts, Russian Deputy FinMin on debt talks)
By Andrei Makhovsky
MINSK, March 29 (Reuters) - Belarus on Tuesday effectively
allowed the Belarussian rouble
The Belarussian rouble has come under pressure from the country's big trade deficit and increased spending by the government in the run-up to the December presidential election, when President Alexander Lukashenko won a fourth term.
To plug the gap, Belarus has asked Russia and other ex-Soviet nations for $3 billion in loans. Moscow says it wants to see credible adjustment proposals before it considers emergency help.
The Belarussian central bank said local banks were now able to trade more freely on the over-the-counter market which should account for up to 70 percent of total foreign exchange turnover.
"Banks ... have been allowed to buy and sell foreign currency to other banks and customers at rates deviating from the official rate by no more than 10 percent," it said in a statement.
The central bank, whose forex reserves fell 20 percent in the first two months of this year to $4 billion due to the trade deficit, had previously allowed banks to deal at only 2 percent above or below the official rate.
This tight restriction would remain in place for exchange points dealing with retail customers, it said.
POSITIVE SIGNAL
Analysts said the move -- urged by the International Monetary Fund -- could be taken as a positive signal by markets, where Belarus Eurobond yields have surged since the start of this year <0#BYEUROSAZ=>.
"The widening of the corridor, in essence, means a 'soft devaluation' of the Belarussian rouble," said Alexander Kudrin, head of fixed income research at Troika Dialog.
"This step is one of the obvious measures directed at reviving the economy and evening out the balance of payments, and the sooner it happens, the better for the economy."
However, analysts have said the rouble could devalue by 20-30 percent if a free float was allowed. Kudrin said the exchange rate should be 50 percent lower than the current 3,038 roubles per dollar.
MOSCOW ACTS TOUGH
The limited devaluation, though, could help Belarus obtain additional funding to plug the current account gap, said Ivan Tchakarov, chief economist for Russia and CIS at Bank of America Merrill Lynch.
"This kind of devaluation could be consistent with fundamentals but it will not close that gap... They need to get more money -- either from the International Monetary Fund or Russia," he said.
Belarus has not applied for IMF financing, opting to seek aid from Russia instead. But, just like the Fund, Russia would require a credible adjustment package before agreeing to Minsk's request, an international financial source said.
"There are (loan) talks, but it is a lengthy process," Russian Deputy Finance Minister Dmitry Pankin told Reuters. "This week they must present to us their proposals on how to stabilise the situation."
Short of money and friends, Lukashenko may have to offer key assets for sale to Russia, further undermining the viability of Belarus's Soviet-style command economy, already squeezed after Moscow cut subsidies on oil and gas supplies.
ELECTION PROMISES
The central bank, which effectively halted forex trading this month, said last Thursday it would restart sales of foreign currency to banks from April 1 but would sell only as much as it could buy from exporters.
Until mid-March, it was selling foreign currency to support the rouble, trying to keep the exchange rate loosely pegged to a basket made up of the dollar, the euro and the Russian rouble.
Raising the average monthly wage to an equivalent of $500 was one of the key items on Lukashenko's election agenda and this makes devaluation politically painful.
"The currency crisis is destroying people's trust in the government," said Leonid Zaiko, the head of Minsk-based Strategiya think tank.
"(It means) the central bank and the government would have to renege on the promises Lukashenko... made before the elections."
(Additional reporting by Toni Vorobyova in Moscow; Writing by Olzhas Auyezov, Editing by Douglas Busvine)