UPDATE 4-Rouble jumps after Russia calls idea of war with Ukraine 'unacceptable'

·3 min read

* Moscow says even idea of war with Ukraine 'unacceptable'

* Russian rouble recovers to 78 vs dollar

* Rouble soars 2.7% vs euro, stocks leap

* Currency dropped to lowest since Nov. 2020 on Wednesday (Updates prices, adds foreign ministry comment)

By Alexander Marrow

MOSCOW, Jan 27 (Reuters) - The rouble soared on Thursday, pulling away from the near 15-month low hit in the previous session and extending gains after Russia said even the idea of war with Ukraine was unacceptable, soothing investor fears of an imminent escalation of tensions.

A Russian foreign ministry spokesman gave the latest official statement aimed at quashing fears of a looming Russian invasion, something Moscow has repeatedly denied it is planning, leading the rouble to jump past 78 versus the greenback for the first time since Monday.

By 1322 GMT, the rouble was 1.9% stronger against the dollar at 77.92, paring Wednesday's losses and extending gains. It had dived to 80.4125 in the previous session, its lowest since Nov. 2, 2020.

Against the euro, the rouble gained 2.7% to 86.95 to a near one-week high.

The trigger for a first sharp rise in the rouble on Thursday may have been Belarus saying Russian troops would leave its territory once military drills, scheduled to end in February, are over, market participants said.

"There was already active dollar selling since this morning, but the news from Belarus accelerated this process," a dealer at a large Russian bank said.

The rouble then strengthened further on the foreign ministry's comments. Russia earlier said it was clear the United States was not willing to address its main security concerns but kept the door open for further dialogue.

PRESSURE EASES

Russian and Ukrainian sovereign dollar bonds rose and the cost of insuring exposure to Russia eased, while yields on Russia's 10-year OFZ bond yields fell to 9.60%, down from their highest since early 2016 of 9.86%. Yields move inversely to prices.

Deputy Finance Minister Timur Maksimov told Reuters any tightening of Western sanctions on an already pressured Russian domestic bond market would make borrowing more expensive for the government.

Its moves dictated by geopolitics, the rouble outperformed other emerging market currencies, which were largely down against a stronger dollar. The greenback was resurgent after U.S. Federal Reserve Chairman Jerome Powell on Wednesday surprised investors by leaving the door open to larger and faster-than-expected interest rate hikes.

"We note that the rouble now looks markedly oversold which, despite the negative background, may affect a sharp recovery in the rouble's position," Promsvyazbank analysts said in a note.

The West has threatened sanctions https://www.reuters.com/markets/europe/how-financial-western-sanctions-might-target-russia-2022-01-19 with profound economic effects should Russia attack Ukraine.

British Prime Minister Boris Johnson said he was discussing banning Russia from the SWIFT global payment system with the United States, one of the harshest measures being considered.

Brent crude oil, a global benchmark for Russia's main export, was up 0.6% at $90.50 a barrel, a more than seven-year high.

Russian stock indexes continued their recovery after a deep sell-off on Monday. The dollar-denominated RTS index was up 7.6% at 1,425.1. The rouble-based MOEX Russian index was 4.9% higher at 3,522.2.

The stock market's slide from October peaks has cast doubt over the prospects for Russian initial public offerings this year. (Reporting by Alexander Marrow; additional reporting by Vladimir Abramov; Editing by Subhranshu Sahu, Barbara Lewis and Mark Heinrich)

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