Rouble weakens on sanctions fears as Putin issues nuclear warning

By Alexander Marrow

MOSCOW (Reuters) -The rouble weakened on Tuesday despite increased demand for the currency ahead of month-end tax payments as President Vladimir Putin delivered a nuclear warning to the West over Ukraine and sanctions fears continued to hurt Russian assets.

Putin said Russia was suspending a landmark nuclear arms control treaty, announced new strategic systems had been put on combat duty and warned that Moscow could resume nuclear tests. He also took a swipe at business elites in a wide-ranging address to both houses of parliament.

By 1425 GMT the rouble was 0.4% weaker against the dollar at 74.77, near to an almost 10-month low of 75.30 hit on Friday.

The Russian currency had lost 0.2% to 79.81 versus the euro and was up 0.3% against the yuan at 10.84.

The rouble is usually in greater demand before month-end taxes are due on Feb. 28, when exporters typically convert their foreign currency revenue.

"The weakening in the first half of February is to a large degree linked with psychological pessimism over the expectation of new sanctions," said Andrei Kochetkov, lead analyst at Otkritie Research.

Nevertheless, the rouble should be supported by exporters in the final third of February, Kochetkov added.

EU members are expected to approve the 10th package of sanctions against Russia this week.

The return of sanctions rhetoric and the European embargo on Russian oil products, which took effect on Feb. 5, were the main factors pressurising the rouble in February, said Alfa Capital analyst Yulia Melnikova.

Brent crude oil, a global benchmark for Russia's main export, was down 0.6% at $83.6 a barrel, while the country's stock indexes were climbed.

"The minuscule turnover, despite market strength, suggests that investors are refraining from action until today's speech by V. Putin, tomorrow's parliamentary sessions and the announcement of new sanctions," Sinara Investment Bank said.

The dollar-denominated RTS index was up 1.2% at 932.4 points. The rouble-based MOEX Russian index was up 1.4% at 2,214.1 points.

Shares in dominant lender Sberbank outperformed, rising 2.6% after CEO German Gref said the bank may resume dividend payments.

Data released on Monday suggested that Russia's economy contracted 2.1% in 2022, a much lower decline than first feared.

Banks, have also proved resilient, with lenders now jostling for business from the state and the country's big corporate players.

(Reporting by Alexander MarrowEditing by David Goodman and Christina Fincher)