By Sujata Rao
LONDON Feb 28 (Reuters) - Russia's rouble stayed near five-year lows to the dollar on Friday, hit by fears about instability in neighbouring Crimea, but Ukraine's hryvnia rebounded, trading 5-10 percent firmer on hopes of an IMF loan.
The rouble and other emerging currencies were also pressured by jitters over the recent volatility in the Chinese yuan which posted its biggest daily fall since China created its foreign exchange market in 1994.
In Ukraine, armed men have taken control of two airports in the Crimea region in what the government described as an invasion by Russian forces, raising fears of an escalation of tensions between the neighbours and between Moscow and the West.
Russia has denied involvement.
The impact of the crisis in Ukraine, continued to be felt across all emerging markets but is taking a heavy toll on Russian assets in particular as it comes on the heels of evidence that the country's economy is slowing.
The rouble fell 0.3 percent to the dollar and hit a fresh record low to the euro and a euro-dollar basket used by the central bank. It has lost more than 2 percent this month against the dollar, taking its losses since the start of 2014 to 9 percent. It has fallen 3.5 percent in February to the basket.
"Ukraine is a trigger, not a cause," said Per Hammerlund, chief EM strategist at SEB in Stockholm. "We have generally a bearish view on the rouble, primarily because of fundamentals but recent turmoil in Ukraine is contributing to a push lower."
He noted that Russia's current account surplus was shrinking while the central bank is losing reserves as it intervenes in currency markets at the pace of $400 million a day.
Russian stocks touched a new three-week low and have lost 3.5 percent so far this week.
In Ukraine however, despite the Crimean tensions, there were signs of stabilisation on financial markets after the country formed an interim government and said it would abide by the conditions of any IMF loan agreement.
An IMF mission is due in Kiev next week, raising hopes of a loan that will stave off bankruptcy and default. Meanwhile the central bank slapped curbs on deposit withdrawals from banks.
The hryvnia which fell to record low beyond 11 per dollar on Thursday, briefly traded at 9.80 per dollar, a rise of 10 percent on the day, while the country's dollar bonds were around half a point stronger across most maturities.
Forward markets are now pricing less hryvnia depreciation ahead, with 6-month forwards now trading at 11.5 per dollar compared to levels beyond 12 on Thursday.
In Turkey, the lira firmed marginally against the dollar while Istanbul shares rose 1 percent after better-than-expected trade data. But investors remain cautious due to uncertainty following corruption allegations from leaked recordings purportedly of Prime Minister Tayyip Erdogan.
Broader emerging equities were up 0.3 percent to a one-month high, buoyed by gains on Chinese stocks and comments by U.S. Federal Reserve chairman Janet Yellen.
Hammerlund said yuan moves would dampen sentiment.
"This is a policy decision to widen the band eventually and shake out some speculative positions to indicate the yuan can go both ways. It will have a dampening effect on risk taking in emerging markets," he added.
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