(Updates prices, adds detail)
MOSCOW, March 13 (Reuters) - The rouble firmed on Wednesday to its strongest level since August against the euro and to a two-week high versus the U.S. dollar as Russia saw strong demand for its government bonds.
After treading water for most of the trading session, the rouble climbed to 73.89 against the euro, a level last seen on Aug. 8 and up 0.2 percent on the day.
Against the dollar, the rouble firmed 0.4 percent to 63.36 , having briefly touched its strongest level since Feb. 25 at 63.33.
“If the dollar/rouble pair entrenches below 65.50, a further rouble strengthening towards its January-February peak of 65.16 should not be ruled out,” said Yuri Kravchenko, an analyst at Veles Capital brokerage.
The rouble extended gains after the finance ministry’s second auction of OFZ treasury bonds saw demand reach 56.7 billion roubles ($867.7 million) for 10-year paper.
At two auctions on Wednesday, the ministry sold a cumulative 91.44 billion roubles worth of OFZ bonds, more than on any auction day in the past few years.
Demand for such bonds is seen as a gauge of investors’ confidence in Russia, given the risk of U.S. sanctions against holdings of Russian debt remain.
The rouble’s appreciation in the past few days has been driven by growing demand for OFZ bonds, said Andrei Kochetkov, an analyst with Otkritie Brokerage.
The central bank said earlier this week that foreign investors had increased their holdings of OFZ bonds in February, and their demand had recovered to levels last seen in early 2018.
The rouble has outperformed most other emerging-market currencies this year, but analysts say its potential for further appreciation is stymied by external conditions and the Russian central bank.
A trader from a large Western bank in Moscow said the rouble would be stronger without the central bank’s purchases of foreign currency for the state reserves.
The central bank increased daily FX buying on behalf of the finance ministry in March following a recovery in prices for oil, Russia’s key export.
On Wednesday, Brent crude oil, a global benchmark, was up 0.9 percent at $67.27 a barrel, supported by ongoing supply cuts by OPEC and U.S. sanctions against Venezuela and Iran.
Russian stock indexes were mixed. The dollar-denominated RTS index rose 0.2 percent to 1,186.18 points. The rouble-based MOEX Russian index was 0.3 percent lower at 2,462.3 points.
For Russian equities guide see
For Russian treasury bonds see ($1 = 65.3475 roubles) (Reporting by Andrey Ostroukh, Gabrielle Tétrault-Farber and Vladimir Abramov; Editing by Mark Potter)