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U.S. Treasury Secretary Steve Mnuchin arrives at Joint Base Andrews in Maryland, U.S., following President Donald Trump upon his return to Washington from New York, December 2, 2017. REUTERS/Yuri Gripas


WASHINGTON (Reuters) - The U.S. Treasury Department said in a report submitted to Congress that expanding sanctions on Russia to include new sovereign debt would have "negative spillover effects" on global financial markets and businesses, Bloomberg reported on Friday.

"Given the size of Russia’s economy, its interconnectedness and prevalence in global asset markets, and the likely over-compliance by global firms to U.S. sanctions, the magnitude and scope of consequences from expanding sanctions to sovereign debt and derivatives is uncertain and the effects could be borne by both the Russian Federation and U.S. investors and businesses," said the report, which was submitted to Congress on Monday.

Bloomberg said investors interpreted the report to mean the United States was unlikely to sanction debt markets despite pressure from Congress for more action to punish Russia for its alleged meddling in the 2016 U.S. presidential election.

Sanctions against sovereign debt, the report said, could put downward pressure on Russian economic growth, increase the strain on the banking sector and "lead to Russian retaliation against U.S. interests," according to Bloomberg.

The report also warned that sanctions on sovereign debt could affect the "competitiveness of large U.S. asset managers," Bloomberg said.

U.S. President Donald Trump's administration on Tuesday published a list of 210 Russians, including 96 so-called oligarchs worth $1 billion or more, as required under a sanctions law passed by Congress, but it did not immediately impose any new penalties on them.

The failure to impose any new sanctions drew criticism from Democrats, but Treasury Secretary Steve Mnuchin told lawmakers at a hearing on Tuesday that new sanctions would eventually be levied on Russia in response to Moscow's interference in the U.S. election.

(Reporting by Katanga Johnson; Editing by David Alexander and Bernadette Baum)

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