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MOSCOW: The Russian rouble hit its strongest point since early January on Thursday before paring gains, at one point wiping out losses sustained at the peak of a standoff with Western nations over Ukraine as traders took stock of a flurry of diplomatic action.

Tensions over a possible military conflict between Russia and Ukraine remain heightened, but Russian assets have largely recovered from a massive sell-off last month that saw the rouble drop to 80.4125, near a 15-month low, and pushed stocks lower and bond yields higher.

By 1422 GMT, the rouble was 0.1% weaker against the dollar at 74.80, earlier touching its strongest mark since Jan. 3 of 74.2550.

It gained 0.2% to 85.11 versus the euro, earlier reaching its strongest since Jan. 12.

Western fears that Russia may invade neighbouring Ukraine remain elevated, with Britain on Thursday saying the West could face the “most dangerous moment” in its standoff with Moscow in the next few days, as Russia held military exercises in Belarus and the Black Sea.

Storm clouds over Russia’s financial system also linger. Western leaders have threatened to impose fresh sanctions on Russia if it makes an incursion, something Moscow has repeatedly denied planning.

“With periodic headlines from each camp - West and Russia -hinting the NATO/Ukraine-Russia standoff may have a diplomatic solution, the outlook for the global economic recovery as a market driver takes on a more normal import,” BCS Global Markets said in a note.

The rouble fell away from its session high after data showed US consumer prices rose solidly in January, leading to the biggest annual increase in US inflation in 40 years and fuelling financial market speculation of a large interest rate hike by the Federal Reserve next month.

That would boost the dollar, but detract from emerging market currencies. Traders were also waiting for any news from the Russian central bank.

The Bank of Russia is expected to raise its key rate on Friday by 100 basis points, a Reuters poll showed, and could also shed light on when it may resume foreign exchange purchases on the domestic market after halting them on Jan. 24.

“If the central bank refrains from a quick resumption of FX purchases, rouble growth could speed up,” said Dmitry Polevoy, head of investment at Locko Invest.

The dollar-denominated RTS index was down 0.7% to 1,524.0 points, earlier clipping a four-week high of 1,547.25 points.

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