By Christian Lowe
Monday, December 10, 2007; 3:51 PM
MOSCOW (Reuters) - Russian President Vladimir Putin backed his long-time ally Dmitry Medvedev to succeed him on Monday, preparing the way for Putin to exercise power from behind the scenes after he leaves the presidency next year.
Medvedev, a 42-year-old first deputy prime minister and chairman of gas giant Gazprom, is seen by markets as business-friendly and less hawkish than his Kremlin peers, but analysts said Putin would be the real power in the land.
Putin's choice brings an end to years of speculation and puts Medvedev in pole position to win a March 2 presidential election because most Russian voters say they are prepared to back whoever the popular Putin endorses.
The Russian president, required by the constitution to step down after serving two consecutive terms, issued the endorsement at a meeting with four party leaders who backed Medvedev.
"I have known him very closely for more than 17 years and I completely and fully support this proposal," Putin was shown saying on state-run television.
"We have a chance to form a robust administration for the Russian Federation after the March elections...an administration that will carry out the same policies that have brought us results for the past eight years."
Medvedev is a trained lawyer from Putin's hometown of St Petersburg. The two men worked together in the city administration in the 1990s. Putin brought Medvedev to Moscow as a key lieutenant shortly before he became president.
Medvedev is softly-spoken and sometimes stiff in front of television cameras. He has adopted many of the mannerisms of his mentor: he uses the same clipped diction and, like Putin, often wears polo shirts under his suit jacket.
If he wins the election, he will be the youngest Russian head of state since Nicholas II, the last Tsar.
Medvedev has been cast by investment analysts as a liberal who is less confrontational towards the West than many of his Kremlin colleagues.
But he has also been at the heart of an administration that has aggressively asserted its interests.
Under his chairmanship, Gazprom has renegotiated energy projects with multinational companies and taken a tough line with foreign customers, notably former Soviet republics accustomed to subsidized deliveries.
"The choice of Medvedev ... reflects Putin's desire to have the most obedient figure," said Yevgeny Volk of the Heritage Foundation think-tank. "Putin views Medvedev as a subordinate on whose loyalty he can count."
Russian stocks powered into record territory on news that Putin had thrown his weight behind Medvedev. Shares in Gazprom, Russia's largest company gained 2.1 percent.
The benchmark RTS index rallied to stand 2.0 percent higher at 2,330 points, a record high.
"It's good news," said Tim Ash, emerging markets economist at Bear Stearns in London. "Bottom line: we all know that Putin's going to be the power behind the throne. Putin will tower over Medvedev."
Observers say Putin has been deliberately delaying endorsing anyone to succeed him to avoid becoming a lame duck and to deny feuding Kremlin clans time to challenge his choice.
There have already been signs of clashes behind the scenes involving the so-called "siloviki" faction, made up of Putin lieutenants with intelligence service or military backgrounds.
"If Medvedev is elected next March, that would weaken the position of the siloviki," said Chris Weafer, chief strategist at Uralsib bank in Moscow.
"It raises some short-term worries over how the siloviki will react -- will they try to block it?"
How Putin will exert influence over his successor is unclear. Analysts speculate he could become prime minister, speaker of the lower house of parliament or take the vacant post of secretary of the Security Council, an advisory body.
A planned visit by Putin later this week to ex-Soviet neighbor Belarus has sparked reports he plans to set himself up as president of a re-unified state. The Kremlin has said those reports were "madness."
(Additional reporting by Oleg Shchedrov and Douglas Busvine; editing by Ralph Boulton)
(Writing by Christian Lowe)