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UPDATE 2-Rouble hits 3-mth low, rebound unlikely before 2010

Published 12/08/2009, 10:47 AM

* Rouble weakens beyond 30 per dlr, 37 vs basket

* Hits levels not seen since mid-September

* Dealers say small scale c.bank intervention possible

* Analysts say rouble weakness may suit authorities

(Adds details, background, quotes)

By Toni Vorobyova and Andrei Ostroukh

MOSCOW, Dec 8 (Reuters) - Russia's rouble sank to levels not seen since September on Tuesday, pressured by subdued oil prices and year-end profit-taking, with market players saying a meaningful comeback is unlikely until January.

Dealers and market sources said the central bank may have come out with small-scale interventions, possibly selling a few hundred million dollars -- much smaller than the size of its participation when it was trying to limit the rouble's gains.

A weaker currency may make it easier for Russia to clamber out of recession, while allowing greater rouble volatility may spook speculators and thus remove the need to introduce capital controls, analysts said.

In the past two weeks, the rouble has retraced two-thirds of an oil-fuelled rally dating back to September. Sentiment has also been bruised by Dubai's debt crisis, which has reduced investors' appetite for emerging markets.

"Internationals have fallen out of love with the rouble for now, these guys have made their money," said a trader at a foreign bank in Moscow.

The currency weakened as far as 37.15 versus the basket according to Reuters data, down 2 percent on the day and at its weakest since mid-September.

Expectations of more interest rate cuts, signs that the economy's recovery from recession remains fragile and talk of the possible introduction of some form of soft capital controls have helped tarnish the rouble's appeal.

"Fundamentals still point to the dollar being lower, but probably not this month. Once we start a fresh year, we will see a bit more rouble appreciation versus the basket," the trader said.

JP Morgan on Tuesday said it was concerned about a potential correction in energy and commodity markets and was tactically downgrading Russia to neutral within global emerging markets.

Expectations of a liquidity boost from the state budget coffers in the final weeks of the year as well as $19 billion of corporate foreign debt falling due in December were seen dampening the prospects for any speedy rouble recovery.

"We expected rouble weakness in December due to the budget spending and the traditional desire to close the year," said Julia Tsepliaeva, chief economist for Russia at Merrill Lynch.

Versus the dollar, the rouble eased to 30.62, moving beyond the psychological 30.00 mark for the first time in over two months and testing its downtrend line.

Any clean break above the trendline could signal the end of the dollar's long-term downtrend against the rouble, although technical analysis is less accurate for a managed float.

NO BIG INTERVENTIONS YET

The rouble remained within the central bank's current floating corridor of 35-38 to the basket. But the regulator has been stepping up interventions within the corridor in recent weeks, rather than just on its boundaries. Such moves are harder to spot or predict and increase the risks for speculators.

The central bank has previously not shied away from spending several billion dollars a day when it has really wanted to influence the exchange rate -- something dealers say it has not yet done during the current phase of rouble weakness.

"I do not think that the central bank will interfere and intervene aggressively. There was talk that the inflow of speculative capital needs to be limited somehow and when the rouble is so volatile, for investors who are coming into Russia for two weeks it is a serious factor," said Tsepliaeva.

Tim Ash, analyst at RBS, said the central bank could allow the rouble to weaken to 37.50-38.00 to the basket.

"Success in managing the currency weaker will also act to head off calls for capital controls, which the central bank still appears reluctant to introduce," he said in a note.

"It therefore seems that rather than marking the start of a deeper FX correction this is more a modest re-alignment of the rouble by the (central bank), just to take the heat out of the market."

Non-deliverable forwards, a barometer of market sentiment, showed the rouble at 32.53 in 12 months -- some 6 percent weaker than now and presenting their most bearish outlook on the exchange rate level in over two months. (Additional reporting by Yelena Fabrichnaya; Writing by Toni Vorobyova; Editing by Ruth Pitchford)

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