MOSCOW: The Russian rouble touched a record low against the dollar on Friday as Russian markets extended losses from Thursday amid fears that an escalating conflict with Ukraine would provoke further Western sanctions.
The rouble dropped to 37.03 against the dollar before recovering slightly to trade at 36.99 at 1200 GMT, leaving it still down 0.7 percent on the day.
The Russian currency was down 0.8 percent at 48.80 versus the euro and 0.7 percent weaker at 42.30 against the dollar-euro basket monitored by the central bank.
The rouble still remains stronger than its historic lows against the euro and basket, 50.95 and 43.03 respectively, reached on March 14.
The rouble's previous low of 37.00 against the dollar was reached on March 3, after Russian President Vladimir Putin got parliament's authorisation to use military force in Ukraine.
That authorisation was withdrawn in June, but evidence has nevertheless been mounting in recent days that Ukraine and the West say shows that Russian forces are fighting alongside separatists in eastern Ukraine.
European Union leaders are meeting on Saturday to discuss possible further sanctions.
"Recalling the events following the Malaysian plane crash, we expect perceptions to again dominate, whether supported by facts or not," analysts at Sberbank said in a note.
"Therefore, we view the threat of new sanctions from the US and the EU as serious and see new measures as likely to be introduced over the weekend. This bodes ill for local assets." Russian stocks also continued to plunge on Friday.
The dollar-denominated RTS index was down 1.9 percent at 1,196 points, falling below 1,200 for the first time since Aug 8.
The rouble-based MICEX index was 1.3 percent lower at 1,405 points.
The RTS had plunged almost 4 percent and MICEX over 2 percent on Thursday when Ukrainian President Petro Poroshenko accused Russia of deploying troops in his country, leading Western governments to threaten new sanctions against Russia.
Morgan Stanley said in a research report on Friday that "escalation puts the 'investibility' of Russia into question.
"In our worst case scenario involving full sanctions, a material portion of the listed stock market in Russia could become uninvestible for many investors".
Russia's energy stocks outperformed domestic-focused stocks, as commonly happens when the rouble weakens, a trend that boosts export earnings relative to domestic revenues. Gas major Gazprom was down 1.2 percent and oil major Rosneft down 0.4 percent.
In contrast, Sberbank fell 1.7 percent and retailer Magnit fell 2.7 percent.
Gazprom's decline came despite some progress in Russia and Ukraine gas talks, with Russia offering to renew a previous 20 percent discount offered to Ukraine.
Oil major Lukoil was down 0.8 percent, broadly in line with energy peers, despite publishing first-half results that showed second-quarter net profit below analysts' forecasts.
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