March 6 (Bloomberg) -- Russia’s ruble strengthened for a second straight week against the dollar as the price of oil rose and the central bank curbed speculation against the currency.

The ruble advanced 0.7 percent to 35.6626 per dollar by 5 p.m. in Moscow, matching this week’s gain. The ruble was little changed at 40.0416 against its target dollar-euro basket, 2.3 percent stronger than the 41 level the central bank pledged to defend in January.

Bank Rossii has kept the ruble from depreciating beyond its trading band for more than a month by raising interest rates, limiting the refinancing available to banks and selling foreign- currency reserves. The ruble has lost 34 percent versus the dollar since August as policy makers drained more than a third of the reserve holdings, engineering what they called a “gradual devaluation.”

“The situation in Russia has stabilized a bit with oil prices starting to recover,” said Ivan Tchakarov, an economist in London at Nomura Holdings Inc. “There’s also a lot less liquidity as a result of the central bank’s conscientious policy to support the ruble.”

Russia’s currency, which is managed against a basket of dollars and euros to limit fluctuations that disadvantage exporters, slipped 0.8 percent to 45.3860 per euro today, paring this week’s advance to 0.2 percent. It jumped for a second straight week versus the basket, strengthening 0.5 percent. The basket, in place since 2005, is made up of about 55 percent dollars and the rest euros.

Oil, the nation’s chief export earner, gained 3.1 percent to $44.97 a barrel today on the New York Mercantile Exchange, jumping 0.5 percent this week. Russia is the world’s largest energy exporter.

Withdrawing Funds

A 54 percent decline in Urals crude prices last year, coupled with the onset of the worst economic crisis to hit Russia since it defaulted on debt in 1998, spurred investors to take more than $300 billion out of the country since August, according to BNP Paribas SA data. Russia saw record capital flight of $129.9 billion in 2008, according to the central bank.

Bank Rossii raised the interest rate charged on overnight and seven-day loans issued for collateral in so-called repurchase auctions by 2 percentage points to 12 percent last month and reduced the amounts lent to banks in repo and unsecured loan auctions as a way of deterring local lenders from converting borrowed rubles into foreign currency and betting on its depreciation.

Outflows amounted to just $4 billion in February, compared with $30 billion in the previous few months, First Deputy Chairman Alexei Ulyukayev told state television yesterday, Interfax reported.

Hurting Economy

The central bank sold an average 111 billion rubles ($3.1 billion) in daily repo auctions this week, compared with as much as 663.61 billion rubles on one day in January. It auctioned just 89.25 billion rubles in unsecured loans this week, compared with 399.44 billion rubles in the week to Feb. 20.

“Russian banks have much less dry powder to speculate on the foreign-exchange market,” Tchakarov said. “But the fact they’re limiting liquidity right now will have a deleterious effect on the real economy.”

Further “deterioration” in Russia’s economy, which the government says may contract 2.2 percent this year, will force Bank Rossii to relinquish its control over the ruble and allow more devaluations, he said. Nomura predicts the ruble will slide a further 11 percent to 45 against the basket by the end of the year, with a risk of “overshooting” to 50, Tchakarov said last month.

Bank Rossii didn’t intervene in the ruble by buying or selling foreign currency this week, according to analysts at Moscow’s MDM Bank.

Buying Dollars

The central bank purchased a net $862 million and 99 million euros ($125 million) in February, after selling a net $178 billion and 24 billion euros in the previous six months, it said yesterday. Bank Rossii’s Ulyukayev said last month the central bank will confine the ruble to a 39 to 41 trading range versus the basket in the first quarter, in an interview with Reuters.

To contact the reporter on this story: Emma O’Brien in Moscow at eobrien6@bloomberg.net

Last Updated: March 6, 2009 09:56 EST