May 22 (Bloomberg) -- The ruble climbed to a four-month high against the dollar, headed for its longest run of weekly gains in almost two years, as surging oil prices and higher interest rates lured investors to Russia.

The ruble jumped to as strong as 31.0887 per dollar today, the most since Jan. 12, and gained 3.2 percent in the week, its sixth weekly advance and the longest rally since September 2007. The central bank bought the most foreign currency on the market in almost a year this week as it sought to control the advance, said Mikhail Galkin, head of fixed-income and credit research at Moscow’s MDM Bank.

“Oil at $60 is just very good news for the ruble,” said Beat Siegenthaler, chief emerging-markets strategist in London at TD Securities Ltd. “Investors are questioning again which currencies can get them some yield and at the moment Russia has one of the highest yields you can get.”

The ruble has climbed 16 percent since the end of January amid a 39 percent jump in Urals crude, the country’s chief export blend, and central bank efforts to deter bets against the managed currency. The ruble depreciated 35 percent in the six months to Jan. 31, spurred by crude’s more than $100 a barrel slump from a record high and the worst global financial crisis since the Great Depression. Oil is Russia’s main export earner.

Russia’s currency added 0.4 percent to 36.6577 against its target basket by 5 p.m. in Moscow, gained 1.6 percent versus the mechanism this week, extending its record weekly advance to 13. The basket, which is used to manage swings that hurt Russian exporters, is calculated by multiplying the dollar’s rate to the ruble by 0.55, the euro to ruble rate by 0.45, then adding them together.

Oil Gains

The ruble was little changed at 43.4795 per euro today, also steady in the week.

Crude gained 1.1 percent to $61.69 a barrel in New York today, headed for a 9.4 percent jump in the week as the dollar’s 3.4 percent drop against the euro encouraged investors to buy commodity futures as a hedge against inflation. Urals rose 1.4 percent to $59.56, the highest since Nov. 5.

Russia’s key interest rates, which have been cut twice since April 24, still exceed those of Europe, the U.S., Japan and other emerging markets. The country’s refinancing rate is 12 percent and the repurchase rate charged on central bank loans is 11 percent. That compares with the euro region’s 1 percent, the target rate of 0.25 percent in the U.S. and even Brazil’s 10.25 percent benchmark borrowing rate. Japan’s rate is 0.1 percent.

“The carry trade is back,” said Siegenthaler, referring to the practice where investors borrow funds in a country with lower rates of interest and then invest the money in a place, such as Russia, where the returns are higher.

Buying Currency

Bank Rossii, has been buying foreign currency on the market in a bid to limit the ruble’s volatility, the central bank’s First Deputy Chairman Alexei Ulyukayev said in an interview last week. The purchases also serve to replenish the country’s foreign-exchange reserves, which were drained by more than a third between August and January as policy makers engineered the ruble’s so-called “gradual” devaluation.

The central bank has bought about $6.5 billion of dollars and euros this week, the most foreign exchange purchased since summer 2008 when the ruble jumped to a record 23.0584 per dollar, MDM’s Galkin said. It bought $3.5 billion last week and $5.5 billion the week before, Galkin said.

Bank Rossii is holding the 36.70 basket level, he added.

Oil’s Rally

“The oil price rally is forcing an increasing number of local players to take profits on their foreign-currency dollar and euro holdings,” said Galkin. “Plus we see a build up of carry-trade positions from foreigners betting on the ruble.”

Investors pared expectations of a weaker ruble this week, with non-deliverable forwards showing the currency at 31.82 per dollar in three months, from an NDF of 32.87 on May 15. The contracts are a guide to expectations about currency movements as they allow foreign investors and companies to fix the exchange rate at a particular level in the future. In a week, the ruble will be little changed at 31.14, according to NDFs.

Central banker Ulyukayev’s comments that it would be “reasonable” for the ruble to gain to 35 versus the basket have been taken as a “signal that the central bank will tolerate a stronger ruble,” said TD’s Siegenthaler. “People took what Ulyukayev said as a signal to go long ruble.” Investors place so-called long positions when they want to bet that a currency or asset is going to strengthen.

“Still, I think that these levels will probably be as strong as we’ll see as politically Russia doesn’t want the ruble to get too strong,” said Siegenthaler, who is currently reviewing his forecast that the ruble will this year break the basket level of 41, the threshold Bank Rossii pledged to defend on Jan. 22.

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

Last Updated: May 22, 2009 09:27 EDT