MOSCOW, Nov 29 (Reuters) - The latest round of U.S.

sanctions on Russian financial institutions caused volatility in

the Russian forex market, but the rouble's exchange rate will be

driven by fundamentals in the medium and long term, the central

bank said on Friday.

"As demonstrated by previous episodes of sanctions,

infrastructure problems arise, complicating export and import

flows. Nevertheless, in the medium and long term, exchange rate

dynamics are determined by fundamental factors," the regulator

said in its financial stability report.

The central bank also recommended that commercial banks

reduce their assets in foreign currency, predominantly China's

yuan, warning that an excess of such assets could lead to

increased volatility in the market.