May 29 (Bloomberg) -- The ruble rose, extending its biggest monthly advance against the dollar since 1995, as oil headed for its best month in a decade. Stocks rallied to the highest level since September.

Russia’s currency appreciated 1.5 percent to 30.8610 in Moscow trading, bringing this month’s gain to 7.5 percent, the steepest jump since June 1995. OAO Rosneft, the nation’s largest oil company, led the Micex Index to a 3.3 percent advance at 5:13 p.m. The equity benchmark is set for its best month since March 2000 and first six-month rally in seven years.

“The momentum is only one way, and betting against that trend in Russia is a losing strategy, for now at least,” Chris Weafer, UralSib Financial Corp. chief strategist, said today in an e-mail.

The ruble has climbed 17 percent versus the dollar since January as oil, the country’s chief export earner, doubled from this year’s low on Jan. 20 and the central bank took steps to deter bets against the managed currency. The rally prompted the central bank to warn that further gains may harm the economy.

Crude has jumped 30 percent in May, its best month since March 1999, as economic indicators from Asia and shrinking crude inventories in the U.S. spurred optimism the global economy on its way to recovery. It rose as much as 2.1 percent to $66.47 a barrel in New York today. Urals crude, Russia’s main export blend, added 0.9 percent to $64.01.

Russia’s currency climbed 0.7 percent to 36.5454 against the central bank’s target basket in Moscow today. It was little changed against the euro. 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. The ruble remains within the 26 to 41 band the central bank pledged Jan. 22 to defend.

Dollar Depreciation

“The markets are increasingly pricing in dollar depreciation vis-à-vis real assets, and ruble versus dollar is a good way to play this view since it benefits from both the commodity rally and dollar weakness to the euro,” said Mikhail Galkin, a fixed-income analyst at MDM Bank in Moscow.

Investors pared expectations of a weaker ruble this month, with non-deliverable forwards showing the currency at 31.58 per dollar in three months, from an NDF of 34.02 on April 30. 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 0.5 percent weaker at 31.02, according to NDFs.

Ruble Pressure

“Barring a return to weak oil prices and collapsed capital markets, both clearly still eminently possible, the pressure will be for the ruble to appreciate,” Roland Nash, chief strategist at Renaissance Capital in Moscow wrote in a note to investors. The ruble may strengthen to 28.80 per dollar by year’s end, according to Renaissance.

Bank Rossii bought roughly $30 billion of foreign currency since Feb. 1, including $17 billion between May 1 and May 25, in an effort to limit the ruble’s volatility, Central Bank Chairman Sergei Ignatiev told a banking conference in St. Petersburg yesterday. The purchases helped Russia to replenish its international reserves, which jumped to $399.9 billion week ended May 22.

The central bank drained more than a third of Russia’s foreign reserves between August and January, managing what it called a “gradual devaluation” against the dollar. A further gain of 1 to 2 rubles against the dollar below 30 “would make us worry” because it would hurt the competitiveness of exporters, Ignatyev said.

Bank Rossii last month cut its key refinancing and repurchase rates for the first time since 2007 and lowered them again May 13 as the pace of consumer-price growth ebbed. The refinancing rate, seen as the limit for borrowing, now stands at 12 percent while the repurchase rate charged on central bank loans is at 11 percent.

The central bank may cut rates again in June as inflation slows, Ignatyev told reporters May 28.

To contact the reporters on this story: Denis Maternovsky in Moscow at dmaternovsky@bloomberg.netWilliam Mauldin in Moscow at wmauldin1@bloomberg.net

Last Updated: May 29, 2009 09:36 EDT