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UPDATE 2-Putin promotes hawkish defence minister

(Updates with comments on appointment)

MOSCOW, Feb 15 (Reuters) - Russian President Vladimir Putin promoted on Thursday a close ally and former spy widely tipped as a possible presidential candidate to the rank of first deputy prime minister from defence minister.

Sergei Ivanov, 54, a longtime KGB veteran, is considered the more hawkish of the two leading candidates to succeed Putin in presidential elections in March 2008.

Speculation about the succession has been intense, with Putin refusing to give any hint about his intentions. The president’s huge political influence and unchallenged power means his electoral preference is likely to be decisive.

Ivanov’s more than 20 years of service in the KGB and its successor organisations have given him close contacts within Russia’s military and intelligence community. More recently he has been leading a drive to sell Russian arms around the world.

Following the promotion from the lower rank of deputy premier Ivanov will have equal status to Dmitry Medvedev, the other presidential front-runner, who is generally viewed as representing the more liberal factions within the Kremlin.

“We agreed with the prime minister to expand the sphere of responsibilities of Sergei Ivanov ... he will be coordinating part of the civilian sector of the economy,” Putin said at a weekly cabinet meeting.

“Sergei Borisovich coped with all the tasks that were put before him at the defence ministry and coped with them, dealt with them successfully,” Putin added in televised remarks, using Ivanov’s patronymic.

Putin said the new defence minister would be Anatoly Serdyukov, a 45-year-old little-known former head of the Federal Tax Service. Russian newspapers have described him in the past as media-shy and low profile.

“No doubt the nomination is connected to the forthcoming elections,” said military analyst Alexander Golts.

Commenting on a wave of recent scandals in the armed forces, he said: “Ivanov seems to have realised that the Defence Ministry turned out to be a killer for any potential successor because too much negative information was coming from it.”

Putin said Ivanov would retain responsibility for Russia’s large and lucrative military industry but did not say what Ivanov’s new civilian economic responsibilities would be. Ivanov was recently put in charge of reviving Russia’s ailing civil aviation industry.

Kremlin spokesman Dmitry Peskov said the changes were “not about elections”. Recalling what Putin had said in a recent news conference, he added: “Remember the president’s words -- there will be no successor, only candidates in an election campaign”.

The changes were driven by Putin’s desire to continue to transform Russia’s system of government and improve its economy, he added.

Steven Dashevsky, head of research at Moscow’s Aton brokerage, said markets were unlikely to react to the move.

“Ivanov’s position was technically equalled with that of Medvedev to simply confirm what everybody has been suspecting -- there are two top candidates,” he said.