Sept. 12 (Bloomberg) -- Russian President Vladimir Putin unexpectedly replaced his prime minister, naming a little-known financial regulator to the post and setting off speculation over how he intends to wield power after leaving office next year.

Putin nominated Viktor Zubkov, the head of the Russian agency that monitors money laundering, to replace Mikhail Fradkov, who resigned today in Moscow along with his government. Zubkov, 65, worked for Putin in the St. Petersburg mayor's office in the 1990s.

While Putin has vowed to step down when his term ends next March, the Zubkov appointment may be a signal that he plans to ride his popularity among voters to stage a later comeback. Zubkov's age and loyalty means he doesn't pose the same potential threat to Putin as younger rivals do.

``Zubkov is almost completely unknown and not a young man,'' Ron Smith, chief strategist of Moscow's Alfa Bank, said in an interview. ``This appointment lends credence to the theory that the next president could be a one-term placeholder before the return of Mr. Putin.''

Another possibility is that Putin, 54, intends to use Zubkov to keep the prime minister's seat filled as he decides on anointing someone else to succeed him. Sergei Ivanov, 54, and Dmitry Medvedev, 41, both first deputy prime ministers under Fradkov, have most often been named in local media as likely successors.

Moscow's Micex stock index fell for the first time in three days, dropping 0.8 percent.

`Uncertainty'

``The market dropped in reaction to uncertainty,'' Alexander Goncharuk, head of AFK Sistema, a telecommunications- to-oil holding, said in a telephone interview. ``Fradkov's government was associated with stability, now the market needs a quick signal there will be new stability.''

Finance Minister Alexei Kudrin in March called Zubkov ``undoubtedly legendary'' for creating a system to fight money laundering ``from the ground up.'' Duma Speaker Boris Gryzlov, head of the pro-Putin United Russia party that dominates the lower house of parliament, said today that as Russia's chief financial monitor since 2001, Zubkov ``is practically in charge of the state's finances.''

The Duma may vote to approve Zubkov as prime minister as early as Sept. 14, Gryzlov said on state television.

`Sure of Himself'

Zubkov's nomination was ``totally unexpected,'' said Olga Khrystanovskaya, a Moscow-based analyst who monitors Russian politics. ``This means that Putin feels totally sure of himself.''

``It's important only that Putin knows him, not the rest of the country,'' said Georgy Satarov, head of Moscow-based corruption watchdog Indem.

Zubkov may remain as prime minister in the next administration ``as a guarantor of stability when the nuclear suitcase is passed from one hand to another,'' Satarov said.

Stanislav Belkovsky, a former Kremlin adviser who heads the Moscow-based Institute for National Strategy, said Zubkov is the only member of the ``St. Petersburg team'' that runs the country whom Putin considers a teacher, not a pupil.

``It doesn't matter that Zubkov isn't well known,'' Belkovsky said by phone. ``Putin can psychologically trust him, and it shows that the president's pupils have disappointed him.''

When the two men worked together in St. Petersburg, Putin would address Zubkov using the formal ``you'' in Russian, while Zubkov would use the informal ``you'' with Putin, Belkovsky said.

St. Petersburg Link

Zubkov was the founder of a dacha, or vacation house, development outside St. Petersburg that included Putin, OAO Russian Railways chief Vladimir Yakunin and banker Yury Kovalchuk, according to Belkovsky. Zubkov is also the father-in- law of Anatoly Serdyukov, who replaced Ivanov as defense minister in February.

Putin, a former KGB agent, himself was catapulted to power in August 1999, when former President Boris Yeltsin made him his fifth prime minister in 17 months. Putin, who had been head of the Federal Security Service, became acting president when Yeltsin resigned on Dec. 31, vaulting him to the presidency three months later.

Putin last dismissed the government in February 2004, three weeks before the previous presidential elections. He replaced Mikhail Kasyanov with Fradkov, who was Russia's envoy to the European Union.

`Good Mood'

Finance Minister Kudrin, viewed by analysts as one of the few liberals left in the government, told reporters there was a ``good mood'' among ministers, who joked at a meeting today about how many times the Cabinet had already been reshuffled.

In accepting Fradkov's resignation, Putin said ``we need to prepare the country for the time after the parliamentary election and after the presidential election.'' Putin later was shown on state television in the Volga River town of Cheboksary, 580 kilometers (360 miles) east of Moscow, touring a school and inspecting a school bus.

Masha Lipman of the Carnegie Moscow Center said politics, not the performance of the government, led to Putin's decision to dissolve parliament.

``It's obvious this has to do with the configuration of power before the presidential elections and the self- perpetuation of the ruling elite, not the performance of the Cabinet,'' Lipman said.

White House Press Secretary Tony Snow told reporters today that Putin's decision to dissolve the government is ``internal Russian politics.''

To contact the reporter on this story: Bradley Cook in Moscow at bcook7@bloomberg.net; Lucian Kim in Moscow at lkim3@bloomberg.net

Last Updated: September 12, 2007 14:45 EDT