* Russian court to hear appeal against theft conviction
* Navalny was sentenced to five-years prison in July
* Analysts say Kremlin calculating outcomes
By Steve Gutterman
MOSCOW, Oct 16 (Reuters) - Convicted at a trial he describesas Vladimir Putin's revenge for his political challenge, Russianopposition leader Alexei Navalny faces five years in prison ifhis appeal against a theft conviction is rejected on Wednesday.
The court hearing in the remote city of Kirov also poses aconundrum for President Putin.
Jailing Navalny would keep Putin's most prominent critic outof elections for years, curtailing any threat from a young rivalwith presidential ambitions who scored a strong second-placeshowing in a Moscow mayoral vote last month.
But it could also revive street protests by Putin'sopponents and human rights activists over what they see as aclampdown on dissent since the 61-year-old president started asix-year third term in 2012.
While Putin denies exerting influence over the courts, manyRussians suspect that rulings in high-profile cases are dictatedby the Kremlin and result from careful political calculation.
"The Kremlin has an unpleasant decision to make," saidDmitry Oreshkin, a political analyst.
A ruling upholding the five-year sentence would be seen bymany as evidence that tough tactics will continue despitesignals meant to suggest a let-up, such as Putin's promise of aprisoner amnesty later this year.
A blogger against corruption among Russia's elite, Navalnyhelped lead the biggest protests of Putin's 13-year rule, whichwere stoked by allegations of fraud in a December 2011parliamentary election.
The protests have faded, but Navalny has emerged as the mainopposition leader, making his trial the most closely watched inRussia since jailed former oil tycoon Mikhail Khodorkovsky'ssecond conviction in 2010.
Accused of stealing timber while working as an adviser tothe governor of the Kirov region in 2009, Navalny - who denieswrongdoing - was convicted of large-scale theft in July andsentenced to five years in prison.
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But he was unexpectedly freed from custody the following dayto allow him to continue his campaign for Moscow mayor.
Some analysts say the Kremlin was betting he would suffer ahumiliating defeat, but he won 27 percent and nearly forced theincumbent, Putin ally Sergei Sobyanin, into a runoff.
"It's difficult for the Russian authorities to jail Navalny,because he has won legitimacy in the form of support from600,000 people who voted for him," said Liliya Shevtsova, asenior associate at the Carnegie Moscow Center thinktank.
Because Navalny's popularity is limited in Russia'sfar-flung regions and Putin faces no imminent threat to hisrule, Shevtsova said that for the Kremlin it would make littlesense to "turn Navalny into a Russian Mandela".
While many analysts expect Navalny's conviction will stand,some predict his sentence might be reduced or suspended, keepinghim out of prison but also out of elections.
Some cautioned, however, that his chances of staying out ofjail should not be overestimated.
"Putin's power structure instinctively follows the standardsof the Stalin or Brezhnev era, when inconvenient and criticalpeople were isolated," Oreshkin said. "The temptation to do thatwith Navalny will be great."
Navalny, who used a smartphone to send tweets during histrial, kept up his anti-corruption campaign on the eve of thehearing with a blog post about an enormous apartment allegedlyowned by the wife of an ice hockey star turned lawmaker.
He maintained a wry air on Twitter, writing: "I'm reallytired of going to Kirov and it's cold there :("
In response to an invitation to a performance at a Kirovtheatre on Wednesday evening, he tweeted: "I'll be there ofcourse".
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