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UPDATE 5-Rouble in sharpest fall since 1998 as storm clouds gather for Putin
December 15, 2014 / 8:16 AM / in 3 years

UPDATE 5-Rouble in sharpest fall since 1998 as storm clouds gather for Putin

* Rouble down 50 pct vs dollar in 2014

* RTS share index plunges 10 percent to 5-year low

* Central bank seen intervening to support rouble

* Putin’s popularity in part based on stability (Adds rouble in U.S. trading, Moscow Exchange comment)

By Alexander Winning and Vladimir Abramov

MOSCOW, Dec 15 (Reuters) - The rouble plunged around 10 percent against the dollar on Monday, its sharpest fall since 1998, and Russian assets sold off across markets, testing the firepower of the central bank and posing a major challenge for President Vladimir Putin.

Traders said the slump in the rouble, down 50 percent against the dollar this year, forced the central bank to intervene in the market on Monday to defend it against the threat of new U.S. sanctions over Ukraine, tumbling oil prices and one-sided bets that the currency would fall.

Intervention has become a near-daily routine since the start of the month. Neither rate hikes nor tough talk from senior policymakers have been able to stem the currency’s decline.

Putin’s popularity, based partly on providing stability and prosperity, is at risk from the rouble’s decline, which is stoking already galloping inflation and damaging Russia’s credibility among investors.

On Monday, the rouble weakened beyond 60 roubles per dollar for the first time, hitting a record low of 64.44 to the dollar on the Moscow Exchange, almost 10 percent weaker than the previous close, and 78.87 versus the euro.

In U.S. trading, the rouble sank further to 65.90 to the dollar after it broke through the upper limits of a price boundary set by the Moscow Exchange, meaning the exchange did not accept offers above 64.4459 in the evening session.

The dollar-denominated RTS share index closed down 10 percent at a five-year low and Russian companies’ dollar bonds sold off.

Three traders told Reuters the central bank probably intervened after the rouble passed 61 roubles per dollar. One said the bank probably sold around $1 billion to briefly bring the rouble back to 60 to the dollar.

“Expectations are strongly weighted for the rouble to weaken,” said Vladimir Pantyushin, a forex and fixed income strategist at Sberbank CIB. “We would need a lot to reverse this trend.”

The bank has spent close to $80 billion propping up the rouble this year, including over $5 billion this month. It has raised its main lending rate 5 percentage points this year in response to Ukraine-related market turmoil.

It said on Monday the Russian economy would likely contract in the first quarter of next year and that it could shrink by around 4.5 percent in 2015 as a whole if oil prices average $60 a barrel.

UKRAINE PAIN

A bill passed by the U.S. Congress after Russian markets closed on Friday set out tougher sanctions on Moscow, putting pressure on Russian assets.

U.S. President Barack Obama has not signed the bill into law and has opposed further sanctions on Russia unless Europe joins in, but the draft law nevertheless soured the market mood.

Crude oil prices came under renewed pressure on Monday, and Brent hit five-year lows of nearly $60 a barrel. That in turn hurt the rouble because sales of oil and gas are Russia’s chief source of export revenue.

“Unless the situation in Ukraine improves and we see a big change in oil prices it’s not trivial to go in and buy Russia,” said Bhanu Baweja, head of emerging market strategy at UBS in London.

The shock from the weaker rouble rippled throughout other markets. The dollar-based RTS index ended down 10.1 percent at 718 points and the rouble-traded MICEX closed down 1.9 percent to 1,431 points.

The cost of insuring exposure to Russian debt jumped to 536 basis points on Monday, the highest since March 2009 and well beyond the 500 mark hit earlier in the day, data from Markit showed.

For rouble poll data see

For Russian equities guide see

For Russian treasury bonds see

Russia in graphics: link.reuters.com/dun63s (Additional reporting by Lidia Kelly and Olga Popova in Moscow and Sujata Rao in London; Editing by Larry King/Ruth Pitchford)

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