Bloomberg News

MOSCOW - Russia's Soviet-era bonds and the ruble both rose after an agreement with creditors to reduce and extend repayment on $32 billion of debt raised hope that the government will mend relations with the West.

Bonds representing the restructured debt gained, with the yield difference to comparable U.S. Treasuries narrowing by more than 4 percentage points. The ruble rose 0.1%, to 28.77 per dollar. Russian Eurobonds retreated from early gains that had pushed yields down to their lowest since Aug. 6, 1998, 11 days before Russia defaulted on $40 billion of its Treasury debt.

A Deutsche Bank AG-led creditors' committee agreed Friday to forgive as much as 50% of the debt, ending talks that had lasted more than a year. The accord opens the way for Russia to borrow again overseas; it is President Vladimir Putin's first foreign policy success since he succeeded Boris Yeltsin Dec. 31.

"It opens the door for Russia's return to capital markets in a year or two," said Timothy McCarthy, a portfolio manager at the $120 million Lexington Troika Dialog Russia Fund. It's "definitely a positive sign for Russia."

Russian stocks and bonds rallied in early trading because the agreement signaled Mr. Putin's intention to pursue Western-oriented economic policies, analysts said. Still, investors are trying to analyze the agreement, and some said it is not all good news.

Mikhail Zadornov, Russia's former finance minister, said in a radio interview that the reduction was insufficient and that Russia may again be forced to ask its creditors for debt relief.

The agreement calls for Russia to issue Eurobonds in exchange for the defaulted debt. For Russian Eurobonds "it's slightly mixed news," said Jonathan Bayliss, director of emerging market strategy at Deutsche Bank AG in London. "You've got improved sentiment," but the increased supply of Eurobonds from Russia could keep prices flat.

The agreement - by reducing Russia's debt burden in the next few years, when it will face a peak of payments on its other foreign debt, including Eurobonds - increases the chance these debts will be honored. Finance Minister Mikhail Kasyanov, who is widely seen as a leading candidate for prime minister after the March 26 presidential election, led the talks in Frankfurt.

"Kasyanov is a true Russian hero," Mr. McCarthy said. "He saved Russia $12 billion to $16 billion."

Since the government's default on its Treasury debt, there have been few bright spots in Russia's relations with the West. The International Monetary Fund has twice suspended its loan disbursals, and relations with the West also have soured over international opposition to Russia's war in Chechnya, a centerpiece of Mr. Putin's policies, and over concerns about Russian businesses laundering money through U.S. and Western European banks.

"The Putin-Kasyanov government is clearly trying to rebuild bridges with the Western financial community," said Peter Boone, director of research at the Moscow-based Brunswick Warburg brokerage.

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