Russia weakens rouble support

By Melissa Akin and Christian Lowe

MOSCOW (Reuters) - Russia's central bank conceded on Tuesday it would have to let the rouble fall further after the currency took a new battering and market fears of Kremlin interference in a bluechip stock helped drive down share prices.

The Kremlin, controlling the world's third-largest forex reserves, has said it can ride out the worst of the global financial crisis but sharp falls in the price of oil, the engine of the economy, have sparked renewed selling of Russian assets.

"It's Armageddon," said a Moscow-based hedge fund manager, who declined to be named, after the MICEX exchange's main index fell 12.6 percent and the benchmark RTS bourse fell 10.7 percent to its lowest level this month.

The central bank widened the rouble's trading band against the euro/dollar basket by 30 kopecks in each direction to increase exchange rate flexibility.

The prospect of more falls in the rouble is likely to fuel nervousness among investors and ordinary people who -- despite Kremlin assurances that the currency is safe -- have already started switching their savings to dollars and euros.

Russia's three main television stations, which are either state-owned or controlled by state firms, ignored or played down the decision to widen the trading band.

Long-standing fears in the market about government interference in private business found a new focus in Uralkali, a potash producer which said an official probe into a mine flood two years ago had been re-opened.

Investor jitters drove the company's share price down 23 percent in London, extending losses to over 70 percent since Friday's close, and 34.81 percent on the MICEX exchange.