Ruble strengthens as Finance Ministry starts selling FX

MOSCOW (Reuters) - The Russian ruble strengthened sharply on Wednesday in volatile trade after the Finance Ministry said it had started selling foreign currency from its leftover stock.

The Russian currency has come under heavy selling pressure this week, forcing the central bank to hike its key interest rate by an unexpected 650 basis points, in an emergency move that did little to buttress the currency.

At 3.25 a.m. EST, the ruble was up around 3 percent against the dollar at 65.52 and was 4.2 percent stronger versus the euro at 81.50 .

Despite Wednesday's modest recovery, the ruble was still down almost 50 percent against the dollar this year, stirring memories of the 1998 crisis when the currency collapsed within a matter of days.

That poses a major challenge for President Vladimir Putin whose popularity, based partly on providing stability and prosperity, is at risk from the ruble's decline, which is damaging Russia's credibility among investors.

Market participants also said exporters could be selling dollars with an eye on the upcoming tax period.

A currency dealer at a large Russian bank said, however, that central bank interventions could not be excluded.

"The strengthening of the ruble looks artificial, so it could be the central bank, though I wouldn't give you a 100 percent guarantee. This could be an errant exporter, whom authorities have 'convinced' to sell forex," the dealer said.

Russia's central bank has conducted over $80 billion in forex market interventions this year to defend the ruble, which has been dragged lower by falling oil prices, Western sanctions over Ukraine and an increasing sense of market panic.

The bank on Wednesday said it had conducted $1.961 billion worth of forex market interventions on Dec. 15.

(Reporting by Vladimir Abramov, Alexander Winning, Darya Korsunskaya and Polina Devitt; Writing by Alexander Winning; Editing by Elizabeth Piper)