×

UPDATE 1-Rouble steadies after rate decision, stocks gain

* C.bank keeps key rates unchanged

* Rouble rises slightly in calmer trade

* Stocks see small gains, helped by commodity prices

(Adds market reaction to rate decision, latest prices)

By Lidia Kelly and Vladimir Abramov

MOSCOW, Oct 5 (Reuters) - After a volatile start on Friday, the Russian rouble steadied after the central bank kept interest rates unchanged, disappointing some market players who had hoped for a rate hike that would make carry trade operations more lucrative.

At 0850 GMT the rouble was virtually steady at 0.1 percent firmer against the dollar at 30.97

and 0.03 percent stronger against the euro at 40.30

, stabilising after marking small losses and gains earlier in volatile trade.

The central bank, after raising rates last month by 25 basis points across the board, left them unchanged on Friday, saying inflationary risks remained high. The decision had been expected although there had been rising speculation that the bank might raise deposit rates.

"By raising rates at the previous meeting, the central bank has increased the attractiveness of rouble carry-trade operations," said Ivan Sinelnikov, an analyst at Gazprombank in Moscow.

Speculators, capitalising on near-zero interest rates in developed markets can sell a currency with a relatively low interest rate and use the funds to buy the rouble, which is yielding a higher interest rate.

Many analysts expect that the central bank will either increase key lending rates by the end of the quarter or raise deposit rates.

"A possible increase in deposit rates will strengthen the medium-term strengthening trend of the Russian currency," Sinelnikov said.

The rouble was stable at 35.19 versus the dollar-euro basket which the central bank uses as guidance of the rouble's nominal rate

.

Russian stocks rose on Friday, buoyed by an improvement in global sentiment after U.S. markets closed higher on Thursday.

The benchmark RTS index

was up 1.66 percent at 1,507.67 points, while its rouble-traded peer MICEX was up 1.62 percent at 1,480.30 points.

Oil, Russia's chief export, slipped slightly during the morning, but Brent crude stayed around $112 per barrel, after a strong bounce in the previous session.

"This will help the Russian market," analysts at Uralsib wrote in a note.

News that Russia-dedicated funds in the week through to Wednesday recorded inflows of $172.6 million - the second largest weekly inflow since the end of March, according to recent tracking data from EPFR Global - should also help, Uralsib analysts said.

Leaving lending rates unchanged is seemingly positive for the Russian debt market, as raising them would slightly cheapen the paper, but on Friday, there was no immediate reaction to the central bank's decision.

The yield on Russia's benchmark Eurobond maturing in 2030 fluctuated around 2.87 percent, as in the previous session.

Russian Latest Net Change % Change % Change on Markets year STOCKS MICEX 1480,30 23,56 1,62 5,57 RTS 1507,67 24,64 1,66 9,10 London ADRs 868,43 12,55 1,47 11,56 Emrg Mkt Indx 1007,08 1,56 0,16 9,90 MSCI Russia 806,75 11,21 1,41 9,50 Sberbank 92,54 1,07 1,17 17,35 VTB 0,05 0,00 1,04 -6,90 Gazprom 158,69 2,28 1,46 -7,36 LUKOIL 1944,00 27,20 1,42 14,19 Rostelecom 137,80 3,55 2,64 -9,34 Dollar/Rouble 30.97 -0,04 -0,09 -3,55 Euro/Rouble 40,30 -0,01 -0,03 -3,44

Rouble basket

35,19 -0,00 -0,01 -3,50 DEBT Bid Ask %Rtn Coupon Russia 10-yr 7,71 7,57 0,31 7,60 bond MONEY MARKET Bid Ask Close Overnight 5,59 6,09 5,60 rate TABLE FROM POWER PLUS PRO

All data taken from Reuters at 0850 GMT

(Writing by Lidia Kelly; Editing by Megan Davies and Susan Fenton)

((lidia.kelly@thomsonreuters.com)(+7 495 775 1242)(Reuters Messaging: lidia.kelly.reuters.com@reuters.net))

Keywords: RUSSIA MARKETS/