UPDATE 1-Russian rouble sell-off resumes after Putin responds to Biden

(Updates prices, adds Putin comment, Deutsche Bank comment)

MOSCOW, March 18 (Reuters) - The rouble resumed a sell-off on Thursday, weakening past 74 to the dollar after President Vladimir Putin responded to his U.S. counterpart Joe Biden, sending jitters through already sensitive Russian markets.

Biden was quoted by ABC News on Wednesday as saying that Putin would face consequences for directing efforts to swing last year’s U.S. election in Donald Trump’s favour. Putin quipped that he wished the U.S. president good health, in a televised response on Thursday.

The spat comes after the release of a U.S. intelligence report, detailing allegations that Putin was behind Russian interference in U.S. elections, accusations Moscow called baseless.

By 1255 GMT, the rouble was 0.4% weaker against the dollar at 73.94, having earlier crossed 74 to head back back towards 74.22, its weakest since March 9, hit in the previous session.

Against the euro, the rouble was steady, trading at 88.21 .

Washington is expected to impose new sanctions on Moscow as soon as next week.

“Sanctions on Russian local currency debt would be the most market impactful of the ‘menu’ of options available to the United States,” Deutsche Bank said in a note.

Russian Finance Minister Anton Siluanov said it would be a pity if foreigners stopped buying Russia’s debt, but Moscow would find ways to fund its costs.

However, many analysts said such a step was unlikely.

Deutsche said it did not expect such a highly aggressive sanctions approach so early in the Biden administration, but added that the bar to more significant sanctions looked lower than a few weeks ago.

“Until there is more information on U.S. intentions, the scope for further appreciation in the rouble will likely be checked.”

The geopolitical premium paid for the rouble appears significant. In early 2020, when oil prices, the main driver of the rouble’s exchange rate, were last near current levels of around $67 a barrel, the rouble stood at about 61 to the dollar.

Russian stock indexes were recovering some of the previous session’s losses when the dollar-denominated RTS index lost nearly 4% and the rouble-based MOEX Russian index shed more than 2%.

On Thursday, the RTS index was up 0.6% at 1,502.1 points and the MOEX Russian index was 0.5% higher at 3,526.1.

Reporting by Alexander Marrow; additional reporting by Andrey Ostroukh in Moscow and Karin Strohecker in London; Editing by Kevin Liffey, Kirsten Donovan