* Russian stocks dip as Ukraine talks continue
* Ukraine crisis expected to weigh on stocks in March
* Central bank says rouble undervalued, cites strong trade
By Jason Bush and Zlata Garasyuta
MOSCOW, March 5 Russian shares retreated on
Wednesday, halting the previous day's rebound, as diplomatic
efforts to ease the crisis in Ukraine showed little sign of
providing a breakthrough.
The rouble nevertheless strengthened after the central bank
said it regarded the currency as undervalued.
Shares fell 2 percent early in the day, recovered in the
afternoon but slipped back slightly in late trade.
At 1445 GMT the rouble-denominated MICEX index was
down 0.4 percent at 1,351 points and the dollar-denominated RTS
was 0.2 percent lower at 1,182 points.
After plummeting by 10-12 percent on Monday on nervousness
after Russia's intervention in the Crimea region of Ukraine, the
stock indexes had rebounded by 5-6 percent on Tuesday.
Probusinessbank trader Evgeny Volkov, however, described the
rebound as "purely technical".
"Unfortunately the market will probably try to return to the
levels reached on Monday. The rhetoric of the U.S. remains
hostile and foreign capital is leaving," he said.
Investors are reducing their exposure to Russia due to
uncertainty about how the situation in Ukraine will play out.
The United States has warned it could impose sanctions on
Russia, which could hit Russia's already slowing economy.
Diplomatic efforts to end the armed stand-off in Crimea
continued on Wednesday, with Russian foreign minister Sergei
Lavrov due to meet his U.S. counterpart John Kerry in Paris.
A spokesman for German Chancellor Angela Merkel said that
Germany continued to view the situation in Ukraine as "alarming"
"Players in the Russian market will most probably adopt a
waiting position, but the dead-end situation around Ukraine will
limit purchases," said Sergei Suvarov, head analyst at Russian
Standard. "The market is very speculative and the ball is in the
court of hedge funds."
Although concerns about Ukraine weighed on the market, it
was supported by positive developments in other global markets,
with Wall Street hitting new record highs on Tuesday.
"But let's look the truth in the face: our market won't be a
good object for investments this month," Andrei Vernikov,
analyst at Zerich Capital, said in a note.
He said the Russian market "will not soar" at least until
March 30, when pro-Russian authorities in the Ukrainian region
of Crimea have announced that they intend to hold a referendum
on the region's status.
However, the rouble, which plunged to a record low against
the dollar on Monday, forcing heavy intervention by the central
bank to prop it up, strengthened for a second day on Wednesday
and was boosted by bullish comments from central bank governor
Nabiullina said she saw no fundamental reasons for the
weakening of the rouble, saying the central bank considered it
to be undervalued given Russia's rising current account and
trade surpluses in the first two months of this year.
She also reiterated the bank's 5 percent inflation forecast
by year-end, and its commitment to shift to an inflation-
targeting policy regime, planned from next year.
At 1445 GMT the rouble was up 0.1 percent at 36.02 against
the dollar, and was 0.2 percent stronger versus
the euro at 49.45.
It was also up 0.2 percent against the dollar-euro basket
, at 42.06.
"In the last three months the rouble in relation to the
dollar has definitely lost practically all connection with
fundamental factors," commented Investcafe analyst Timur
Nigmatullin in a note.
The rouble has shed 9 percent against the dollar this year.
The central bank said on Wednesday it had spent the
equivalent of $11.4 billion in foreign currency reserves on
Monday to support the rouble, stemming a sell-off caused by the
escalation of the Ukraine crisis.
"It is too early to talk about a stabilisation of the
situation, as the tone of statements from American and European
officials isn't weakening," ING economist Dmitry Polevoy said.
"In these conditions the rouble could easily move (down)
further, especially in advance of the referendum date in Crimea
and in the absence of obvious ways out of the crisis."
For rouble poll data see
For Russian equities guide see
For Russian treasury bonds see
Russia in graphics: