The Russian markets jumped to 7-month high this week, with traders optimistic the rally can continue, if demand for oil stays healthy.

A lasting rally or just a correction on the bear market? Both Russian stock exchanges reached record high levels this week, since the beginning of the financial crisis in autumn 2008.

The Micex has exceeded the psychological 1000 point level, driven by some tentative positive news overseas and the all-important oil price hitting $58/bbl. Evgeny Nadorshin, Chief Economist at Trust Bank says the rally can continue if crude holds or firms.

“If oil keeps its levels, and even swine flu has not triggered sell offs, there is a possible rally for another 2-3 weeks, if the oil remains or will reach a corridor of $60-$65 per barrel.”

Another key driver of the rally has been the reawakening of global investor interest in emerging markets. Russia, which lost many investors due to perceived political risk following the war with Georgia last summer, is now seeing some of them return.

But much of the big money remains in cautious hands and the market has mainly been driven by speculators so far. Mark Rubinshtein, Chief Analyst at Metropol sees investors testing the waters.

“All international investors wants to be Russia, but they just don t know how much they want to be in. If before, it was 25% now it can be 5%, and they want to raise it up to 12%.”

Expecting a correction, some analysts say that despite its seeming strength the rally might well be just a bounce back from the bear market, with the gains of around 30% this year, needing to be seen in the context of a 70% drop since last summer.