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UPDATE 2-Jittery oil prices limit rouble gains after surprise rate rise

(Updates prices, adds Sberbank)

MOSCOW, March 19 (Reuters) - The Russian rouble recovered from a 10-day low against the dollar on Friday after the central bank unexpectedly raised its key interest rate but gains were capped by swings in oil prices and concerns about potential new U.S. sanctions on Moscow.

The rouble has suffered this week since U.S. President Joe Biden said his Russian counterpart Vladimir Putin would “pay a price” for alleged meddling in the 2020 U.S. election.

A surprise 25 basis point rate rise by the central bank and the promise of more to come briefly boosted the rouble before oil prices turned negative, adding to pressure on Russian assets.

By 1510 GMT, the rouble was 0.3% stronger versus the dollar at 74.09, moving away from its weakest level since March 9 of 74.48 hit earlier in the day, but struggling to gain a foothold below the 74 threshold.

Higher rates increase the yields the Russian market offers and make lending more expensive, which could support the rouble and tame inflation but is negative for economic recovery.

Tighter monetary policy is positive for the rouble but “expectations of new sanctions next week speak for increased volatility to remain next week”, said Dmitry Polevoy of Locko Invest.

Yields on 10-year rouble Treasury bonds, which move inversely with their prices, climbed to 7.06% after the rate rise, their highest in almost a year.

Against the euro, the rouble added 0.6% to reach 88.08 , still away from a seven-month high of 86.5150 touched earlier this week.

Brent crude oil, a benchmark for Russia’s main export, limited gains in the rouble as it has fallen sharply since hitting $70 a barrel mark on Monday.

Brent was up 0.7% at $63.68 per barrel, after posting losses earlier in the day.

Russian stocks were down. The dollar-denominated RTS index fell 0.8% to 1,477.0. The rouble-based MOEX index was 0.8% lower at 3,475.6, having hit an all-time high of 3,602.18 on Monday.

Shares in Sberbank outperformed the wider market with a 1.7% gain after Russia’s largest lender approved 2020 dividends of about 56% of net profit. ($1 = 74.1875 roubles) (Editing by Subhranshu Sahu, Barbara Lewis)

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