* Belarus eases forex restrictions
* Seeks Russian loans
* January Eurobond falls by 6 big figures
(Releads with Eurobond selloff, analyst, fund comments)
By Andrei Makhovsky and Olzhas Auyezov
MINSK/KIEV, March 23 (Reuters) - Belarus, battling a balance of payments crisis that has led investors to dump its sovereign debt, said on Wednesday it would lift some foreign exchange controls as it seeks a bailout loan from Russia.
The confidence-building measure gave little reassurance to fixed-income investors, however, as they sold off Belarus' $800 million, 7-year Eurobond issued in January, pushing its yield up by 140 basis points to over 12 percent.
"The problem is the market is in panic," said Sergei Strigo, head of emerging debt at Amundi Asset Management in London.
Belarus has come under pressure following a spike in state spending in the run-up to December's presidential election, in which Alexander Lukashenko won a fourth term amid controversy over a crackdown against his opponents.
The huge current account deficit and depletion of foreign reserves that have resulted from the spree do not yet challenge Lukashenko's grip on power. But they have weakened his position in emergency loan talks with former Soviet master Russia.
A delegation led by Finance Minister Andrei Kharkovets held talks in Moscow on Tuesday with Russian counterpart Alexei Kudrin "on questions of credit and financial cooperation", the Russian finance ministry said.
Belarus is seeking a $1.7 billion loan from a Russia-led bailout fund set up by a group of ex-Soviet states, as well as a multi-billion-dollar export credit to finance the construction of a Russian-built nuclear power plant, officials said.
Prospects for fresh aid from the International Monetary Fund have, meanwhile, been hurt after the United States and European Union -- both strongly represented at the Fund -- slapped travel bans on Lukashenko and top officials over the election.
DEFAULT STILL SEEN UNLIKELY
Strigo, whose fund holds Belarus bonds, said a default looked unlikely due to the small volume of debt. "They do have sources of finance, the IMF or Russia, or they can privatise. However all this will take a bit of time," he said.
Belarus is one of Europe's poorest countries and has not undergone the sort of free market transformation experienced by Poland and other new EU members, leaving it dependent on cheap Russian energy and other support from Moscow.
"Even if the scenario of Belarus obtaining a loan from Russia were to transpire, it will only provide a temporary respite," Bank of America Merrill Lynch economist Ivan Tchakarov said in a note.
"The market will need stronger reassurance that the key underlying vulnerability in the economy, the current account deficit, is being addressed in earnest," Tchakarov commented.
RESUMPTION
The central bank introduced a series of restrictions on foreign exchange trading this year as its reserves fell 20 percent in January-February to $4 billion, enough to cover just a few weeks of imports.
The regulator said on Wednesday it would restart sales of foreign currency to local banks from April 1, but would sell only as much as it can buy from exporters. Central bank sales of forex in cash remain suspended.
It added that priority would be given to foreign currency purchases "for payment for medicines, for supplying the country with natural gas, for paying back debts in foreign currency and for other uses".
"Panic demand from the population is gone, people have calmed down," central bank chairman Pyotr Prokopovich told state news agency BelTA. "But now entrepreneurs have started buying foreign currency ... We will not supply entrepreneurs."
Analysts say the Belarussian rouble, which trades at around 3,020 per dollar, is overvalued, given a current account deficit for this year forecast at 14 percent of GDP.
RBS analyst Tim Ash estimated that to reach fair value, the Belarussian unit would need to weaken by 20-30 percent. (Additional reporting by Antonina Vorobyova in Moscow, Sujata Rao and Caroline Copley in London, Editing by Douglas Busvine)