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Russia Stocks Surge on Possible Khodorkovsky Parole, German Data

March 26 (Bloomberg) -- Russian stocks advanced the most in more than two weeks after Deutsche Bank AG said former Yukos Oil Co. billionaire Mikhail Khodorkovsky has a “50-50” chance of winning an early release and after a report showed German business confidence unexpectedly rose.

The Micex Index of 30 shares jumped 1.6 percent to 1,565.12 by the 6:45 p.m. close in Moscow, its strongest gain since March 11. Federal Grid Co., Russia’s power grid operator, surged 4.3 percent. VTB Group, the country’s second-biggest bank, advanced 3.2 percent.

Releasing Khodorkovsky would boost Russian stocks 5 percent to 10 percent, Yaroslav Lissovolik, Deutsche Bank’s head of research and strategy for Russia, said in a note to clients distributed today. German business confidence unexpectedly rose to an eight-month high in March, suggesting Europe’s largest economy will return to growth even as the sovereign debt crisis curbs euro-area demand for its exports.

The odds of Khodorkovsky being freed are “significantly higher than anytime in the past,” Lissovolik said in the note. He declined to comment further when reached by phone today.

The Kremlin’s human rights council this month urged outgoing President Dmitry Medvedev to pardon Khodorkovsky before Vladimir Putin’s inauguration, which is scheduled for May 7.

Khodorkovsky was arrested on the tarmac of a Siberian airport in 2003 and sentenced to 13 years in prison after two convictions for fraud, tax evasion and oil embezzlement. Khodorkovsky maintains his innocence, saying the cases against him were retribution for his opposition to Putin.

‘Make a Smash’

The Russian gauge surged as much as 1.6 percent in August 2008 on a report, later retracted, that Khodorkovsky had been given parole. President Dmitry Medvedev steps aside in May to allow Putin to reclaim the Kremlin spot he occupied from 2000 to 2008.

The new government may want to “make a smash,” by releasing Khodorkovsky, according to Mattias Westman, founder of London-based Prosperity Capital Management, the largest Russia-focussed fund manager with about $5 billion in assets. “It would have a positive effect and would make people reconsider Russia,” Westman said by phone from London. A 5 to 10 percent gain for the Micex is not “a bad estimate,” Westman added.

Medvedev ordered a review of guilty verdicts against Khodorkovsky and his business partner Platon Lebedev, giving Prosecutor General Yuri Chaika until April 1 to present his findings, the Kremlin said in a statement March 5.

Positive ‘Knee-Jerk’

“The initial knee-jerk would be positive, but whether it held would have more to do with the price of oil and data indicators coming out of China,” said Chris Weafer, chief strategist at Troika Dialog, the investment bank owned by Russia’s largest lender OAO Sberbank. Weafer also believes Khodorkovsky has a “50-50” chance of an early release.

European stocks rallied after Germany’s Ifo institute reported its business climate index, based on a survey of 7,000 executives, rose to 109.8 from a revised 109.7 last month. Economists had forecast it to remain unchanged at the initial February reading of 109.6.

OAO Magnit, Russia’s largest food retailer by market value, added 0.6 percent to 3,630 rubles. The company, based in Krasnodar, southern Russia, reported last week a 21 percent jump in its net income for 2011 to 12.3 billion rubles ($360 million).

Sberbank, Russia’s biggest lender, surged 2.6 percent to 99.99 rubles, its highest close since March 16. The bank is due to report fourth-quarter earnings March 28.

Lending Expansion

“In light of the ongoing rapid expansion in lending, the bank is set to deliver invariably strong core income,” said Leonid Slipchenko, senior analyst at UralSib Financial Corp., who predicts a 15 percent increase in the bank’s income from the prior year.

Oil for May delivery gained 33 cents to $107.2 a barrel on the New York Mercantile Exchange. Prices rose $1.52 to $106.87 on March 23, the highest close since March 21.

The Micex is the cheapest of the benchmark indexes for BRIC countries, trading at about 6.1 times earnings estimated by analysts. That compares with about 9.8 for the Shanghai Composite Index and 15 for the BSE India Sensitive Index.

To contact the reporter on this story: Brad Cook at bcook7@bloomberg.net

To contact the editor responsible for this story: Hellmuth Tromm at htromm@bloomberg.net

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