Russia will start trading in Chinese yuan CNY= against the rouble by the end of 2010, in a move which could boost trade ties between two of the biggest emerging economies, top officials said on Wednesday.

The move is a step towards settling bilateral trade in national currencies, as championed by Chinese and Russian leaders when they met in June 2009 -- an intention that has been reiterated by officials since.

The launch of the yuan-rouble trading is a priority, Kirill Vergunov, the head of domestic market operations at the central bank, told reporters on the sidelines of a markets conference.

Jinny Yan, economist with Standard Chartered in Shanghai, said she expected such trade to also start in China. The move had been expected since Beijing launched trade in the Malaysian ringgit MYR= last month, she added.

Russia has been pushing for a greater role of the rouble on the global financial market and, eventually, as some form of a reserve currency. Beijing is also seeking a greater international role for the still tightly-controlled yuan.

"It's pretty symbolic...This is pretty much in line with their (the Chinese central bank's) strategy," Yan said.

"Potentially, this is a new currency pair for onshore traders to quote. In practice, though, it's not going to start significant amounts of flow in the currency."

Russian analysts and market players agreed that, while significant in the long run, in the short term volumes and market impact would likely be limited.

"There is a lot of potential but the amount of trade between Russia and China is not that large, the business relationship is not that vibrant," said Elina Ribakova at Citibank in Moscow.

"And even euro/rouble is not that active. It has a great future but at this stage I think the effect will be muted."

The MICEX exchange liquidity is mostly confined to dollar/rouble RUBUTSTN=MCX -- traditionally the most important currency for Russia's export-focused economy.

Trade in the euro/rouble pair EURUSDTN=MCX and euro/dollar EURUSDTN=MCX on the MICEX is considerably lower, meaning most transactions involving the euro are carried out via the dollar. This applies to the central bank's own operations.

GROWING TRADE

Trade turnover between Russia and China has been speeding up in the last few years, rising to $25.47 billion in the first six months of 2010 compared to $16.29 billion a year ago, according to the Russian Federal Customs Service data.

But China still accounts for just 9 percent of Russia's foreign trade, while the European Union claims 50 percent.

The ties are strengthening though, with China, agreeing to lend Russia $6 billion for coal supplies.

"Taking into account a growing trade turnover with China, the demand for such operations (direct currency settlements) will be also increasing," said Alexander Morozov, chief economist Russia and CIS at HSBC in Moscow.

Natalia Orlova, chief economist at Alfa Bank, agreed the yuan-rouble trade would be good for trade turnover but said it would not have a large impact on the economy or markets.

Trading in the pair will be held daily on the MICEX from 10 a.m. to 11 a.m. Moscow time (0600-0700 GMT), said Vergunov.

"Some 30 banks are interested in that. These are Russian banks and Chinese affiliates," MICEX Vice-President Igor Marich said, adding that volumes would start relatively low.

Ruben Aganbegyan, head of the MICEX exchange, said that to increase volumes, infrastructure would need to be developed.

The Chinese central bank's yuan fixed exchange rate policy may be a hurdle for such forex operations and will not pose a threat for the dollar .DXY, which is currently the main transfer currency between China and Russia, analysts say.

However, in the longer run, the direct yuan-rouble trading "will transfer to less demand for the dollar as a transit currency," said HSBC's Morozov.