UPDATE 1-Rouble falls as Russia, Ukraine trade accusations over seized ships

The rouble weakened to its lowest since mid-November on Monday as market players priced in risks carried by Russia's seizure of Ukrainian naval ships off the coast of Russia-annexed Crimea.

Having largely ignored a sell-off on the oil market last week, the rouble took a hit from concerns about the standoff between Russia and Ukraine that reminded investors of 2014, when Moscow annexed Crimea and was stung by Western sanctions.

Russia seized three Ukrainian naval ships on Sunday after opening fire on them and wounding several sailors, escalating tensions between the two countries.

On Monday Ukrainian President Petro Poroshenko signed a decree introducing martial law in Ukraine for two months following the incident, though it must still be approved by the country's parliament.

The rouble dropped to 67.17 versus the dollar for the first tinme since Nov. 14, heading away from levels of around 65.50 seen last week.

As of 1318 GMT, the rouble shed 1.4 percent to 67.13 against the greenback and was on track to post its largest one-day slide since Nov. 9.

"The selling pressure on the Russian rouble increased after Russia attacked Ukrainian warships reigniting simmering conflict between the two countries," said Piotr Matys, EM FX Strategist at Rabobank in London.

"The resurfacing of geopolitical risk that may lead to another round of punitive measures against Russia accompanied by the precipitous fall in oil prices since the beginning of October leaves the bias skewed to the upside in USD/RUB," Matys said.

Against the euro, the rouble also fell, shedding 1.9 percent of its value to 76.44.

"The escalation of conflict between Russia and Ukraine... clearly creates a negative background for the rouble in the short term," said Dmitry Dolgin, chief economist at ING Bank in Moscow.

Recovering oil prices did little to help the rouble. Brent crude oil, a global benchmark for Russia's main export, was up 2.3 percent at $60.14 a barrel after last week's drop to $58.41.

A trade war between the world's two biggest economies and oil consumers, the United States and China, has weighed on the energy market this month.

Oil prices are in focus again ahead of the G20 meeting in Argentina this week, where U.S. President Donald Trump and his Chinese counterpart Xi Jinping are set to meet.

Russian stock indexes fell. The dollar-denominated RTS index was down 2.3 percent at 1,087.8 points, while the rouble-based MOEX Russian index was 0.9 percent lower at 2,322.2 points.

For Russian equities guide see

For Russian treasury bonds see (Reporting by Andrey Ostroukh Additional reporting by Karin Strohecker in London Editing by Gareth Jones)

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