Dec. 10 (Bloomberg) -- Russian President Vladimir Putin threw his support behind a longtime associate, First Deputy Prime Minister Dmitry Medvedev, 42, to succeed him in May, ending years of speculation.

``As far as Dmitry Anatolyevich Medvedev's candidacy is concerned, I have known him very closely for more than 17 years,'' Putin said on state television today. ``We have worked very closely together all these years, and I completely and utterly support this choice.''

Putin's announcement came as a surprise. Many observers predicted he would pick his prime minister, Viktor Zubkov, 66, to be a weak successor who would allow him to continue to wield power behind the scenes. Medvedev's youth casts doubt on that scenario and the possibility that Putin could return to the Kremlin if the new president stepped down before his term ends.

``Medvedev has been put in the position where he is absolutely certain to replace Putin,'' said Chris Weafer, chief strategist at UralSib Financial Corp. in Moscow. ``Medvedev is more likely to stay for a full two terms than leave early to allow Putin to come back. It means that Putin's role will diminish over time.''

Gazprom Chairman

Boris Gryzlov, chairman of the United Russia party that dominates parliament, proposed Medvedev's candidacy at a meeting with Putin in Moscow today. Medvedev is also chairman of OAO Gazprom, the world's largest natural-gas producer, which has become a powerful instrument of Putin's foreign policy.

Putin, 55, has approval ratings of more than 80 percent after overseeing eight years of economic growth and political stability and pollsters say his blessing guarantees the election of his chosen heir in the March 2 presidential election.

The Russian leader had said he expects to retain influence after he steps down and that a strong showing in the parliamentary election would give him the ``moral right'' to continue guiding the country. Putin must step down as president after serving two consecutive terms, the most allowed by the constitution.

Russian shares rose to records following the announcement. The ruble-dominated Micex Index gained 1.7 percent to 1,945.53 in Moscow, while the dollar-denominated RTS Index added 2 percent to 2,330.45. Gazprom increased 2.2 percent.

St. Petersburg Natives

Medvedev, a lawyer by training, got to know Putin in the early 1990s when he worked under the Russian leader in the St. Petersburg mayor's office. Both men are natives of Russia's second largest city.

Putin, who became prime minister in 1999, brought Medvedev to Moscow to work in his office. Medvedev then followed his mentor to the presidential administration when Putin took over as president on Dec. 31, 1999. His big break came in November 2005 when he got his current job as deputy premier.

Unlike Putin and many others among the president's closest associates, Medvedev doesn't come from a security-service background. Western investors view him as a supporter of free- market policies.

Medvedev's nomination is ``an excellent outcome for Russia, and not just for the financial markets,'' said Christopher Granville, director of research at Trusted Sources, an analytical service on emerging markets.

`Post-Soviet Generation'

``It's because of his age,'' Granville said by phone from London, noting that Medvedev graduated in 1988, ``when the Soviet system was already beginning its meltdown.''

Medvedev is ``as close as you can get to a post-Soviet generation,'' Granville said, adding that ``generational change is the most important catalyst'' for Russia to escape the lingering influence of the past.

His background as a lawyer also means Medvedev is ``the most attuned of the higher elite to the principles of the rule of law,'' Granville said.

``This news is likely to encourage a wall of money to hit Russia,'' Kingsmill Bond, chief strategist at Troika Dialog in Moscow, said in an e-mailed note.

United Russia, which won 64 percent of the vote in elections to parliament eight days ago, will officially nominate Medvedev for the March vote on Dec. 17, Gryzlov said.

Medvedev, a former law professor who dresses in well- tailored suits, is in charge of spending $11 billion to upgrade housing, education and health care in Russia.

Zubkov, Ivanov

He won Putin's backing ahead of two other men widely named as potential successors, Zubkov and First Deputy Prime Minister Sergei Ivanov, 54.

Until September when Putin named Zubkov his prime minister, Ivanov and Medvedev were seen as the likeliest successors. Ivanov, an English-speaking former defense minister who served with Putin in the Soviet-era KGB, has mostly held a lead in opinion polls since June though Zubkov was catching up fast.

An opinion poll published last month by the independent Levada Center in Moscow on presidential voting intentions gave Medvedev 24 percent support, compared with 25 percent for Ivanov and 20 percent for Zubkov.

Putin said his choice of Medvedev would ensure ``firm authority in the Russian Federation after the March elections of 2008, and not just firm authority, but one that will carry out the course that has brought positive results over the last eight years.''

Medvedev is likely to have to rely on Putin to govern Russia, at least initially, as he doesn't have his own power base, said Yury Korgunyuk of INDEM, a Moscow-based research group that lobbies for government transparency.

``He doesn't have his own team -- of course he will create one, but while he's building it he will need help, he'll need to consult with Putin,'' Korgunyuk said in a phone interview.

To contact the reporter on this story: Sebastian Alison in Moscow at Salison1@bloomberg.net; Henry Meyer in Moscow at hmeyer4@bloomberg.net

Last Updated: December 10, 2007 11:33 EST