CORRECTED-UPDATE 3-Rouble, stocks down after Russia says will challenge Yukos ruling

Mon Jul 28, 2014 11:50am EDT

(Corrects bullets, lead to say $50 billion not $51 billion)

* Court orders Moscow to pay $50 billion in Yukos case

* Russia says will appeal decision

* Markets fear further sanctions

MOSCOW, July 28 (Reuters) - The rouble and Moscow stocks extended their losses on Monday after Russia said it would appeal against an international court ruling to pay $50 billion for expropriating assets of the now-defunct oil producer Yukos.

The Finance Ministry said in a statement that it found the decision of the arbitration court in The Hague "politically motivated" and "flawed.".

At 1450 GMT, the rouble, which had been down 0.7 percent against the dollar for most of the session, extended its losses to trade 1.2 percent lower at 35.55, its weakest since the first days of May.

The dollar-denominated RTS index closed down 3.1 percent at 1,207 points, after trading about 2.5-2.7 percent down on the day earlier in the session.

"If the Russian government tries to avoid paying these charges, then there will be freezing of Russian assets all over the world," said Andrei Illarionov, former economic adviser to President Vladimir Putin and now his critic.

Shares of Sberbank, Russia's largest lender, closed 3.1 percent lower.

"Usually, when traders and investors want to bet on an improvement of the situation in Russia, then they buy Sberbank (shares)," said in a note Airat Khalikov, analyst at Veles Capital in Moscow.

"Unfortunately, now we see the opposite. The decline in Sberbank stocks may be an indicator of a fundamental reassessment of the negative prospects of the Russian economy."

Rosneft, which received most of the former Yukos assets through auctions and which had been outperforming the broad MICEX index for most of Monday, recouped some of the early session losses to close 1.2 percent down.

Rosneft, Russia's top oil producer, is not a defendant in the case and said it did not expect any claims to be made against it in connection with the court ruling.

Rouble-denominated MICEX was 2 percent down at 1,363 points, weighed by the rapidly weakening Russian currency.

The rouble also weakened 1.2 percent against the euro to trade at 47.74.

This has left the Russian currency also 1.2 percent weaker at 41.02, its weakest in seven weeks, versus the dollar-euro basket the central bank uses to guide the rouble's nominal exchange rate.

The possibility of new sanctions against Moscow over Ukraine is also keeping Russian assets under pressure, analysts say.

The European Union outlined an agreement on Friday to step up moves to punish Russia for failing to rein in separatist rebels in eastern Ukraine. A decision on sanctions may come on Tuesday. (Reporting by Zlata Garasyuta, Darya Korsunskaya, Alexander Winning, Megan Davies, Lidia Kelly and Kira Zavyalova,; Writing by Lidia Kelly; Editing by Kevin Liffey/Ruth Pitchford)