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UPDATE 2-Rouble drops towards 73 vs dollar, stocks fall on geopolitical fears

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(Updates with further rouble losses)

MOSCOW, Nov 12 (Reuters) - The Russian rouble weakened more than 1% on the day towards 73 to the dollar on Friday, extending losses registered on Thursday on concerns over escalating tensions between Russia and Ukraine that also hit bonds and stocks.

At 1600 GMT the rouble was 1.5% weaker at 72.68 , having touched 72.9775, a level last seen on Oct. 4, apart from a seconds-long drop on the Moscow Exchange on Oct. 22 that was likely caused by a trading error.

The decline that started overnight was triggered by a Bloomberg report saying that U.S. officials had told EU counterparts about concerns over possible Russian military intervention in Ukraine, analysts said.

“Not helping the ‘Russia’ risk trade, geopolitics is again on the radar as the U.S. has flagged its European Union allies that ‘unusual’ Russian movements along the Ukrainian border may signal a potential escalation of tension in the region,” BCS Global Markets said in a note.

The Kremlin dismissed such concerns, saying Russia did not pose a threat to anyone.

The rouble also came under pressure this week from expectations that the United States may raise rates to fight inflation, which is expected to have a negative impact on emerging market currencies.

But the currency is likely to retain support from monetary policy tightening at home as the Bank of Russia is expected to raise its key interest rate from 7.5% at the next board meeting on Dec. 17.

Against the euro, the rouble fell 1.9% to 83.54.

Russian stock indices were also down, taking a hit from a decline in prices for Brent crude oil, a global benchmark for Russia’s main export, that fell 0.7% to $82.27.

“Russian equities are likely to remain under pressure due to a combination of EM risk aversion and heightened geopolitical tensions as Moscow gets dragged into the border dispute between Belarus and the EU and on U.S. claims that Russia is planning an invasion of Ukraine,” said John Walsh, equity strategist with Alfa Bank.

The dollar-denominated RTS index slumped 3.8% to 1,783.43 points, its lowest since early October, while the rouble-based MOEX Russian index retreated by 1.6% to 4,123.98 points. (Reporting by Andrey Ostroukh Editing by David Goodman, Chizu Nomiyama and Andrei Khalip)

Our Standards: The Thomson Reuters Trust Principles.

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