By Andrey Ostroukh
MOSCOW (Reuters) - The Russian rouble fell sharply on Thursday and government bonds fell to more than a three-year low amid growing geopolitical concerns about Moscow's standoff with the West.
The rouble dropped after Russian Deputy Foreign Minister Sergei Ryabkov said Washington's rejection of Moscow's key security demands was leading talks into a dead end. Russian military specialists were giving President Vladimir Putin options in case the situation around Ukraine worsened, he said.
Russia said its talks with the West had so far failed to bridge fundamental differences over the Ukraine crisis and Moscow's demands that NATO pull back from central and eastern Europe.
At 1519 GMT, the rouble was 2.2% weaker against the dollar at 76.36, heading away from the session peak of around 74.4625.
Versus the euro, the rouble fell 2.4% to 87.59 after hitting 87.62, its weakest since July 2021.
"Ryabkov's comments spooked the market ... sparking a sell-off in the rouble and OFZ bonds," said a forex dealer at a major Russian bank in Moscow.
Yields on Russian 10-year benchmark OFZ government bonds, which move inversely with their prices, rose to 9%, a level last seen in late 2018.
The central bank did not immediately comment on a Reuters question about the rouble drop and its implications.
The rouble has been under pressure since October, as Western countries expressed concerns about Russia's military build-up near Ukraine. Moscow has said it can move its army within its own territory as it deems necessary.
On Wednesday, NATO said it was willing to talk to Russia about arms control and missile deployments to avert the risk of war in Europe, but Moscow said the situation was "very dangerous" and the way forward was unclear.
The Russian finance ministry also added to the pressure on the rouble by increasing state purchases of foreign currency for the state coffers in the month ahead.
The finance ministry's increased FX purchases will limit the room for the rouble recovery, and the Russian currency is expected to firm only to 74 against the dollar by the end of the month, Sinara Investment Bank said in a note.
But the rouble still retains fundamental support from globally high commodity prices and central bank rate hikes at home.
Russian stock indexes fell, shrugging off a recovery in Brent crude oil, a global benchmark for Russia's main export, to $84.64 a barrel.
The dollar-denominated RTS index dropped 5.5% to 1,524.2 points. The rouble-based MOEX Russian index was 3.5% lower at 3,696.6 points, its lowest since Dec. 24.