Ukraine edges towards EU as West-Russia struggle deepens

BRUSSELS - Ukraine was to take a step closer towards the EU on Friday after the European bloc and the US put in place sanctions on Russian figures close to President Vladimir Putin as punishment for Crimea's annexation.

Moscow has said it will retaliate by issuing its own list of sanctions against senior US officials but there were already signs of the harsher toll Russia was having to bear as the crisis rumbled into a new phase.

Fitch on Friday followed fellow ratings agency Standard & Poor's in downgrading Russia's credit rating outlook to negative from stable because of the growing risk due to the West's sanctions.

"Since US and EU banks and investors may well be reluctant to lend to Russia under the current circumstances, the economy may slow further and the private sector may require official support," Fitch said in a statement.

Europe and the United States on Thursday imposed sanctions on several high-ranking figures in Russia.

They were punishment for a Russian-engineered referendum in Crimea last Sunday that saw most voters opting to have the peninsula separated from Ukraine and absorbed into the Russian Federation. Russia's upper house of parliament was to ratify that on Friday.

US President Barack Obama announced the new round of punitive measures against 20 Russian lawmakers and senior government officials, in addition to 11 individuals already targeted. Obama said Russia risked further isolation if it did not reverse course.

Among those named were top businessmen close to President Vladimir Putin such as billionaires Gennady Timchenko, Arkady Rotenberg and Boris Rotenberg plus a bank used by close associates.

In Brussels, European Union leaders slapped an asset freeze and travel ban on 12 more Russians and Ukrainians, bringing to 33 the number of figures targeted by the European bloc. The dozen new figures were to be identified on Friday. European Council president Herman Van Rompuy said "some are really highly-placed".

The 28-nation bloc also cancelled an EU-Russia summit planned for June and called for the dispatch of international or EU monitors to Ukraine.

Moscow responded to the US move by launching sanctions against nine US officials, including ranking political figures and presidential aides.

"There should be no doubt: each hostile attack will be met in an adequate manner," the Russian foreign ministry said.

There was no immediate Russian response to the EU sanctions.

Europe's leaders stopped short of wider economic sanctions but insisted they were ready to ratchet up the pressure in case of further signs of Russian aggression.

"If there's any further destabilisation in Ukraine, then there should be further wide ranging measures taken," said British Prime Minister David Cameron.

But with some EU nations are heavily dependent on Russian oil and gas. Consequently, the bloc is divided on how far it should go, and many members are reluctant to raise the economic stakes.

Ukraine getting EU support

In a fresh sign of support for Ukraine's transitional authorities, EU leaders on Friday will sign with interim premier Arseniy Yatsenyuk the political sections of a broad EU Association Agreement. Its rejection back in November by Ukraine's pro-Kremlin president Viktor Yanukovych sparked the protests that led to his fall.

A key area of concern is energy, with Russia supplying more than a quarter of the EU's gas.

EU efforts to diversify energy supplies after Russia cut deliveries to Ukraine in 2006 and 2009 have so far failed to make much headway and the EU leaders are due to discuss the issue again.

The International Monetary Fund said meanwhile it made "significant progress" in talks with Ukraine's new Western-backed government over the resumption of a vital support programme for the crisis-hit state.

Standard & Poor's on the other hand revised the outlook on Russia's credit rating to negative from stable on rising political and geopolitical risks linked to the Ukraine crisis and accompanying Western sanctions.

Sanctions and calls for talks have so far done nothing to halt Russian military advances, with Kiev's new Western-backed government preparing a Crimean evacuation plan for thousands of Ukrainian soldiers and their families.

The march by Moscow's troops and pro-Kremlin militias across the mostly Russian-speaking region roughly the size of Belgium has been unhalting since the day Putin won parliamentary approval to use force against his ex-Soviet neighbour following the February 22 fall of Yanukovych.

Kiev's untested leaders have voiced fears that President Vladimir Putin has set his sights on Russified southeastern swathes of Ukraine as part of his self-declared campaign to "protect" compatriots.

Yatsenyuk said Ukraine would "respond firmly, including through military means," if Russia attempts to annex the country's mainly Russian-speaking regions.

But the Pentagon said Russian Defence Minister Sergei Shoigu promised his US counterpart Chuck Hagel in a telephone call Thursday that Moscow would not assault eastern Ukraine.

Hagel voiced concern about Russian military movements but Shoigu assured him that "the troops he has arrayed along the border are there to conduct exercises only and they have no intention of crossing the border into Ukraine and that they would take no aggressive action," Pentagon spokesman Rear Admiral John Kirby told reporters.

But Russia's Federal Customs Service announced tougher and more time-consuming inspections of goods entering the country from Ukraine that it said were aimed at intercepting possible illicit shipments of arms.