Rouble strengthens as sanctions fears erode domestic FX confidence

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MOSCOW, Oct 3 (Reuters) - The Russian rouble strengthened on Monday, remaining a fair way off Friday's three-month high hit against the dollar but still supported by local fears that new sanctions may limit investors' ability to trade foreign currencies in Moscow.

Russian markets expect more sanctions after President Vladimir Putin signed treaties annexing four Ukrainian regions last week, a move Western governments and Kyiv say breaches international law.

At 0801 GMT, the rouble was 2% stronger against the dollar at 57.27, some way off 53.23, its strongest mark since July 1, hit in a very volatile session on Friday.

"To say that the rouble was volatile on Friday would be an understatement," said Dmitry Polevoy, head of investment at Locko Invest. "56.90 at breakfast, 53.20 at lunch and near 58.45 at dinner."

The rouble had gained 2.7% to trade at 55.20 versus the euro , after reaching a near eight-year high of 50.7250 on Friday. It had firmed 2.2% against the yuan to 8.156 .

With the conclusion of last week's month-end tax period that usually sees export-focused firms convert FX revenues into roubles to pay local liabilities, Polevoy said there should be no strengthening of the level seen on Friday.

Russian stock indexes were higher, but remain highly susceptible to geopolitics.

"For the Russian market geopolitical risk remains on the agenda after Gazprom suspended its gas supplies to Italy over the weekend, in what appears to be the latest iteration of the conflict between Moscow and the EU over the supply of natural gas," said Alfa Bank in a note.

The dollar-denominated RTS index was up 3.5% to 1,077.4 points. The rouble-based MOEX Russian index was 1.4% higher at 1,982.1 points.

Russian manufacturing activity grew at its fastest rate in 3-1/2 years in September, driven by rises in production, new orders and client demand, a business survey showed on Monday, though Western sanctions continued to weigh on export business.

For Russian equities guide see

For Russian treasury bonds see (Reporting by Alexander Marrow, editing by Ed Osmond)