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UPDATE 2-Russian rouble hits 8-week low on geopolitical concerns as dollar recovers

(Updates prices, adds liquidity deficit, Locko-Invest comment)

MOSCOW, Jan 27 (Reuters) - The Russian rouble slumped to a more than eight-week low versus the dollar on Wednesday, coming within a whisker of crossing the 76 threshold, dragged down by lingering geopolitical concerns related to the arrest of Kremlin critic Alexei Navalny.

The threat of new sanctions against Moscow over Navalny’s arrest and subsequent protests demanding his release have plagued the rouble in recent days.

By 1457 GMT, the rouble was 1% weaker against the dollar at 75.85, earlier hitting 75.9825, its weakest since Dec. 1.

It had lost 0.2% to trade at 91.56 versus the euro .

“Their threat (sanctions) will constrain the potential for rouble strengthening, but we do not expect serious weakening from the current level without a significant worsening of the baseline fundamentals,” said Dmitry Polevoy, head of investment at Locko-Invest.

Russian lawmakers on Wednesday approved an eleventh-hour extension to the New START nuclear arms control treaty, potentially offering the rouble some support.

Markets were awaiting comments from U.S. Federal Reserve Chair Jerome Powell, who is likely to renew a commitment to ultra-easy policy, a move that would support riskier currencies.

The dollar recovered earlier losses in spite of hopes for an economic rebound from the pandemic, as the International Monetary Fund upgraded its forecast for 2021 global growth.

“For Russia, the ever-optimistic local retail crowd may continue to offer support, even as institutionals eye the door,” said BCS Global Markets in a note.

The finance ministry enjoyed healthy demand of 33.8 billion roubles ($445.2 million) at its sole OFZ treasury bond auction on Wednesday. These bonds are popular among foreign investors for their lucrative yields.

Russia’s banking system remains in rouble liquidity deficit. Data on Wednesday showed the structural deficit reached 1.037 trillion roubles, its highest since mid-2016.

Brent crude oil, a global benchmark for Russia’s main export, was down 0.7% at $55.54 a barrel, sending Russian stock indexes lower.

The dollar-denominated RTS index was down 2.5% to 1,387.4 points. The rouble-based MOEX Russian index was 1.5% lower at 3,339.3 points.

For Russian equities guide see

For Russian treasury bonds see ($1 = 75.9200 roubles) (Editing by Katya Golubkova and Mark Potter)

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