By Chris Vellacott
LONDON, July 25 (Reuters) - Russian shares opened lower on Friday, depressed by the threat of deeper economic sanctions in retaliation for Moscow's role in Ukraine while broader emerging equities stayed just off 17-month highs hit earlier this week.
Moscow's dollar-denominated RTS share index and its rouble-traded equivalent the MICEX were both around 1 percent lower as European Union governments mulled what steps they will take. The market is down 2 percent this week and looks set to extend last week's near-8 percent loss.
However, the rouble held its ground, heading for a small weekly gain against the dollar, which analysts attributed to expectations sanctions will be limited in spite of recent escalations in Russia's diplomatic standoff.
"I think the markets are seeing that the EU is looking at tougher measures and will move gradually but they also know that the Russian markets are resilient. We don't expect there to be significant financial market disruptions such as default," said Neil Shearing, chief emerging markets economist, at Capital Economics.
The rouble is supported by high interest rates and bond yields of around 9 percent and the central bank is expected to leave rates unchanged later on Friday as it grapples with above-target inflation.
On Thursday, ambassadors of the 28-nation EU discussed ways to limit Russian access to capital markets, arms and energy technology following the downing of a Malaysian airliner in an area of eastern Ukraine controlled by Moscow-backed separatists.
Earlier, the United States said Russia was firing artillery across its border, targeting Ukrainian military positions, and that Moscow intends to deliver heavy weapons to separatist forces.
The cost of insuring Russian sovereign debt against default rose, with five-year credit default swaps up 4 basis points from the previous day, to 212 bps, according to financial data provider Markit.
Ukrainian CDS moved up 9 bps to 796, a one-month high, as political uncertainty weighed following the resignation of the country's prime minister who berated politicians for failing to pass legislation to take control over an increasingly precarious energy situation.
Ukraine's 2017 sovereign dollar bond extended losses, falling almost half a cent to 101 after the previous day's 2 cent fall in reaction to the government's resignation
More broadly, the MSCI emerging stocks index was trading 0.2 percent lower but clinging close to 17-month highs as investors continued to bet on the U.S. Federal reserve persisting with loose monetary policy.