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Russian markets rally after Putin speech acknowledging Ukrainian presidential elections

Russian President Vladimir Putin speaks during a plenary session of the St. Petersburg International Investment Forum Friday, May 23, 2014. Putin said Friday at an investment forum that Russia will

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Russian President Vladimir Putin speaks during a plenary session of the St. Petersburg International Investment Forum Friday, May 23, 2014. Putin said Friday at an investment forum that Russia will "respect the choice of the Ukrainian people." He said that Russia wants peace and order to be restored in Ukraine. (AP Photo/RIA Novosti Kremlin, Mikhail Klimentyev, Presidential Press Service)

ST. PETERSBURG, Russia - Russian markets rallied on Friday after President Vladimir Putin said he would "respect the choice of the Ukrainian people" in its upcoming presidential election.

Russian stocks rose, with the MICEX index up 0.6 per cent, after Putin's speech at an annual economic forum in St. Petersburg. The ruble rose 0.5 per cent against the dollar to 34.1 rubles, its strongest level since February, before Russia made moves to annex Ukraine's Crimean Peninsula in early March.

Putin signalled that he would back the Sunday elections and seek peace and stability in Ukraine, where the U.S. and the European Union have accused Russia of fomenting unrest against the pro-Western government in Kyiv. The frontrunner in Ukraine's Sunday election is the billionaire candy-maker Petro Poroshenko, who played a prominent role in the three-month long protest movement that helped oust Ukraine's Russia-leaning president in February.

Russia's stock market and currency have taken a heavy hit in recent months as western countries imposed economic sanctions on many leaders for the role in the Ukraine crisis. Concerns that the sanctions could broaden and impact economic ties — particularly the lucrative energy industry — have weighed on confidence, with investors pulling money out of the country. That has helped weaken Russia's economy, which is sliding into recession, according to some estimates.

While the Kremlin has moved to defuse tensions with Ukraine in recent weeks — announcing on Monday that all Russian troops had left the border with Ukraine and returned to their regular bases — foreign investors could continue to hold back in the coming months, as they wait to see whether Moscow will truly foster ties with the new Kyiv government.

"The rally is based on encouraging words, but for the next stage of market improvement we want to see what actually happens," said Chris Weafer, an analyst at Macro Advisory in Moscow. "I don't think we'll recover all the losses we've seen."

One potential boiling point between the two countries would be Ukraine's massive debt for Russian gas. Last week Putin said that Ukraine's gas bill stood at $3.5 billion, and threatened that Moscow could stop delivering gas from June 1 if Kyiv does not start paying in advance.

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