Russian rouble regains ground with an eye on geopolitical risks

By Gabrielle Tétrault-Farber and Andrey Ostroukh

MOSCOW, Aug 28 (Reuters) - The Russian rouble firmed on Friday, recovering from multi-month lows, but its gains were capped by geopolitical risks related to the crisis in Belarus and the suspected poisoning of Kremlin critic Alexei Navalny.

The rouble tumbled this week after Russian President Vladimir Putin said the Kremlin had set up a "reserve police force" to support Belarusian leader Alexander Lukashenko.

On Friday, Lukashenko said he had agreed with Putin that their countries could unite their troops in the event of a threat from the West. But the rouble shrugged off this comment.

With emerging market currencies generally lifted by the U.S. Federal Reserve's new inflation policy, which fuelled investors' appetite for riskier assets, the rouble recovered from the four-month low of 76.0025 against the dollar it touched on Wednesday.

The rouble had gained 0.7% to 74.48 against the dollar as of 1257 GMT RUBUTSTN=MCX and was 0.1% stronger at 88.51 versus the euro EURRUBTN=MCX, having touched 89.81 earlier this week, its weakest since February 2016.

"In the afternoon we could see a retreat back to 75 (against the dollar), as market participants consider a possible escalation in geopolitical tensions over the weekend," Sberbank CIB said in a note.

"However, if the geopolitical situation remains calm, we think the local currency has the potential to firm to 73 next week."

The rouble received a boost from a U.S. Federal Reserve announcement that it would aim for 2% inflation on average instead of making it a fixed objective.

"This approach should allow the regulator to carry on without raising rates for a long time, something that is generally beneficial for risky assets," Elena Kozhukhova, an analyst from Veles Capital, wrote in a note.

The rouble's gains, however, remained capped by lingering geopolitical concerns over the poisoning of Navalny.

Russian prosecutors said they saw no need for a criminal investigation into Navalny's sudden illness. The German hospital treating him said on Friday his condition was stable, but serious.

The Belarusian rouble fell below 3.17 against the euro, a fresh record low EURBYN=. It was steady against the dollar BYN= at 2.65, close to all-time lows of 2.6640 hit on Thursday.

Russian stock indexes were mixed. The dollar-denominated RTS index .IRTS was up 0.3% to 1,268.3 points. The rouble-based MOEX Russian index .IMOEX was 0.5% lower at 2,997.9 points.

For Russian equities guide see RU/EQUITY

For Russian treasury bonds see 0#RUTSY=MM

(Reporting by Gabrielle Tétrault-Farber and Andrey Ostroukh; Additional reporting by Katya Golubkova; Editing by Kirsten Donovan and Mark Potter)

((Gabrielle.Tetrault-Farber@thomsonreuters.com;))

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