By Jason Bush and Olga Popova
MOSCOW, March 14 (Reuters) - Russian stock indexes hit their lowest levels since 2009 on Friday before clawing back some ground, two days before a referendum in Crimea that is expected to provoke western sanctions against Russia.
The rouble was also down despite a central bank decision to keep an emergency rise in interest rates in place for the coming months, with sentiment hurt by reports of lists detailing from a handful to dozens of senior officials affected by sanctions.
Share indexes fell around 5 percent in the morning but had partly recovered in the afternoon after immediate selling pressure linked to daily margin calls faded, and with investors still uncertain over the implications of Crimean developments for investors in Russia.
At 1100 GMT the MICEX stock index was down 2.2 percent at 1,191 points, while the dollar-denominated RTS index had fallen 2.6 percent to 1,023 points.
"People are panicking because of probable sanctions and international isolation. Who will need these shares then?" asked a trader at a western bank in Moscow.
Oleg Dushin, chief analyst at Zerich Capital, said: "The main thing to fear is the reaction of western countries next week to the (Crimean referendum) result."
"In fact the reaction so far hasn't been the toughest, but the uncertainty about this frightens investors."
Officials told Reuters on Friday the European Union had drawn up a list of 120-130 names of senior Russian officials who could be hit by sanctions.
EU foreign ministers are due to meet on Monday and are expected to introduce asset freezes and travel bans on Russian officials seen as implicated in Russia's takeover of Crimea. They have warned of possible further measures affecting economic relations more broadly.
On Thursday U.S. Secretary of State John Kerry said sanctions against Russia "could get ugly fast" if it failed to show signs of compromise in the Crimea stand-off.
ISOLATION
A banker in Moscow told Reuters that there was a real risk that international investment banks would have to pull out of Russia if East-West relations kept deteriorating.
"The fear is that everything stops, all trade stops, Russia becomes isolated ... Then banks would have to pull out."
"There are no loans, no equity transactions, no nothing going on," the banker said.
However, some market participants said investors were not convinced that western sanctions would be damaging economically.
"Investors don't especially believe in serious economic sanctions," said Maxim Gulevich, general director of UBS Securities in Moscow.
"They think the sanctions will be political. Therefore there are quite a lot of brave people who are either buying, or are interested in buying particular shares."
Russian stock indexes have lost around 16-17 percent this month since President Vladimir Putin received authorisation from parliament to send troops into Ukraine, and pro-Russian authorities in Crimea prepared a referendum to join Russia, a move western countries condemn as illegal.
Russian markets are also reacting to negative moves in global markets, following falls of more than 1 percent on Wall Street on Thursday, and declines in Asian markets on Friday after weak Chinese industrial and retail data reinforced concerns about China's slowing economy.
Shares in some less liquid stocks such as utilities and metals producers, which are typically volatile, fell by over 10 percent on Friday, before recovering some ground to leave them down 6-7 percent. However, the sell-off was indiscriminate.
"On the whole, shares are falling irrespective of sector," said Konstantin Chernyshev, head of research at Uralsib.
"Of course illiquid shares in such a situation feel very bad, but it's liquid ones as well, because when investors begin to close their positions in such a period of turbulence they sell liquid shares first of all."
Dushin from Zerich said Russian banks had been badly hit because they were seen as vulnerable to possible financial sanctions, and they have significant operations in Ukraine.
Sberbank was down 3.2 percent and VTB down 4 percent.
In contrast some export-oriented companies that are seen as less politically exposed have seen buyers, Dushin said, citing oil company Lukoil, which was up 1 percent.
Standard Bank analyst Tim Ash said in a note that whatever the final outcome of the Ukraine crisis, there would be a permanent cost for Russian financial markets.
"Foreign and local investors are voting with their feet - and leaving Russia," he wrote. "This crisis will inevitably change risk perceptions of Russia, negatively, and these perceptions will be very difficult to overturn, i.e. there will be lasting damage to Russia from this."
Russia's former finance minister Alexei Kudrin told a meeting of Russian businessmen on Thursday the threat of western sanctions was causing higher international borrowing costs for Russian companies, and that further sanctions would lead net capital outflows to reach around $50 billion per quarter.
In a report on Friday, Renaissance Capital estimated that the capital outflow in the first quarter will exceed $55 billion, compared with $63 billion in the whole of 2013.
RATES ON HOLD
The rouble showed no reaction to a central bank decision to leave its key lending rate unchanged and an announcement that the bank did not intend to reverse a recent steep interest rate hike in the coming months.
On March 3 the central bank raised the rate to 7 percent from 5.5 percent, as a temporary measure to stem large-scale capital flight that is putting downward pressure on the rouble.
Over recent days the rouble has been buttressed by heavy central bank interventions aimed at keeping it within a floating corridor against a dollar-euro basket. The rouble was at the edge of the corridor on Friday, implying that the central bank was carrying out unlimited interventions to support it.
The rouble was down 0.1 percent at 36.64 against the dollar and down 0.2 percent at 50.88 against the euro.
It had fallen 0.2 percent to 43.05 against the dollar-euro basket, implying that the central bank had moved the corridor by a further 10 kopecks on Friday morning in response to its continuing interventions.
The central bank said the corridor stretched from 35.95 to 42.95 as of Thursday. It also announced on Friday that it had expended $2.66 billion in forex reserves on Wednesday, signifying large selling pressure on the rouble.
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