By Andrey Ostroukh and Alexander Marrow
MOSCOW (Reuters) -The rouble rose on Tuesday as Russia said some troops near Ukraine were returning to their bases after military exercises, easing invasion concerns that had fuelled a Russian asset sell-off last week.
However, the currency pared some of its earlier gains after the parliament voted to appeal to President Vladimir Putin to recognise two Russian-backed breakaway regions in eastern Ukraine as independent.
Recognition of the two regions could unravel the existing Minsk peace process for east Ukraine to which Russia has said it is committed.
By 1035 GMT, the rouble was 1.6% stronger against the dollar at 75.57, still some way off levels past 75 which were hit before the currency's sharpest drop in nearly two years on Friday.
The rouble strengthened 1.1% against the euro to 85.73.
"Market sentiment remains highly fragile, so volatility is bound to stay high," Sberbank CIB said in a note.
On Monday, the currency gained after Russian Foreign Minister Sergei Lavrov suggested to Putin that Moscow should continue along the diplomatic path in its efforts to extract security guarantees from the West.
The currency's reaction to those words showed that a single phrase can be sufficient to move the rouble strongly in either direction, said Dmitry Polevoy, head of investment at Locko Invest.
"We still believe the rouble is likely to rise from these levels," he said, adding that the rouble has lagged other emerging market currencies by 5% to 7% this year.
Russia's troop buildup has spooked Western powers, many of whom have warned that Russia could invade Ukraine imminently, something Moscow has repeatedly denied planning.
"The shuttle diplomacy continues – as long as the West remains vocal on the issue, the market will continue to follow headlines, with the binary outcome (a further deterioration vs conciliation) suggesting significant up/downside," BCS Global Markets said.
Brent crude oil, a global benchmark for Russia's main export, was down 3% at $93.69 a barrel, close to a more than seven-year high. [O/R]
Russian stock indexes were up, recovering after a sell-off in the previous two sessions.
The dollar-denominated RTS index rose 4.6% to 1,491.5. The rouble-based MOEX Russian index was up 3% at 3,586.3.