By Sujata Rao and Carolyn Cohn
LONDON, March 4 Russian equities, bonds and the rouble soared on Tuesday and Ukraine's assets rallied after Russian moves that investors took as a sign of an easing in East-West tensions.
Russian President Vladimir Putin said Moscow would only use force in Ukraine "as a last resort" after ordering troops involved in a military exercise in western Russia back to base.
"There has been a visible decrease in geopolitical tensions in the region and the market has taken the news very positively," said Tatiana Orlova, a strategist at RBS. "The biggest concern has been the possibility of the conflict spilling into eastern Ukraine."
Putin skirted questions about Russian servicemen taking control of the Crimea region, saying armed men who seized buildings were local forces.
But in a further positive development, Russia's top gas producer Gazprom offered a $2-3 billion loan to Ukraine to repay its gas debt to the Russian firm.
Russian and Ukrainian dollar bonds rose by as much as 6 cents on the dollar, and Russian stocks climbed 6.5 percent, after plunging 12 percent on Monday.
Average sovereign Russian bond yield premiums over U.S. Treasuries fell 2 percentage points on the EMBI Global index.
Russian debt insurance costs fell 24 basis points to 208 basis points, according to Markit, after surging to nine-month highs on Monday. Ukraine's CDS tumbled 108 bps to 1110 bps and the hryvnia rose 4 percent.
The rouble rose 1 percent after getting a boost from a 150 bps emergency rate rise on Monday, a higher pace of central bank interventions and news the finance ministry had suspended dollar purchases for a wealth fund.
UBS strategist Manik Narain said the central bank had made it tougher to run short-rouble positions by upping implied 12-month rouble yields to 8 percent, higher than the Indian rupee and only slightly below the Brazilian real's 9 percent.
"One reason why the rouble has been under so much pressure is that at a time when so many emerging central banks were moving to a strong defence of their currencies, Russia was coming through as a laissez-faire central bank," Narain said.
"Now the central bank is sending the message that they have reached the limit and will push back against speculation in the rouble."
In central Europe, the zloty and the forint rose nearly 1 percent to the euro . Both currencies got help from the previous session's robust PMI data, which had been overshadowed by the events in Ukraine.
The Budapest stock market rose 2.9 percent and shares in Ukraine-exposed bank OTP jumped more than 5 percent after sliding 10 percent on Monday.
The Turkish lira also rose nearly 1 percent and Turkish stocks gained more than 2 percent, despite an ongoing corruption scandal.
President Abdullah Gul ordered state auditors on Tuesday to assess Turkey's ability to combat corruption, including in the construction sector, amid a graft investigation that has implicated senior elected officials.
For CENTRAL EUROPE market report, see
For TURKISH market report, see
For RUSSIAN market report, see )