* Moscow stocks fall 11.3 pct, rouble down 2.5 pct
* Ukraine border guards report Russian build-up near Crimea
* Biden, EU ministers tell Russia withdraw or face isolation
* Russian fleet denies ultimatum for besieged Ukraine units
* Demonstrators fly Russian flag in south, east Ukraine
By Lidia Kelly and Alissa de Carbonnel
MOSCOW/PEREVALNOYE, Ukraine, March 3 (Reuters) – Russia paid
a heavy financial price on Monday for its military intervention
in neighbouring Ukraine, with stocks, bonds and the rouble
plunging as President Vladimir Putin’s forces tightened their
grip on the Russian-speaking Crimea region.
The Moscow stock market fell 11.3 percent, wiping nearly $60
billion off the value of Russian companies – more than the $51
billion Russia spent on the Winter Olympics in Sochi last month.
The central bank spent as much as $12 billion of its
reserves to prop up the rouble as investors took fright at
tensions with the West over the former Soviet republic.
U.S. President Barack Obama called Russia’s actions a
violation of international law and of Ukraine’s sovereignty,
saying his government would look at a series of economic and
diplomatic sanctions that would isolate Moscow.
Putin needs to allow international monitors to mediate a
deal in Ukraine acceptable to all Ukrainian people, Obama told
reporters in Washington. “Over time this will be a costly
proposition for Russia. And now is the time for them to consider
whether they can serve their interests in a way that resorts to
diplomacy as opposed to force,” he said.
The European Union threatened unspecified “targeted
measures” unless Russia returns its forces to their bases and
opens talks with Ukraine’s new government.
In his first public appearance for nearly a week, Putin flew
to watch military manoeuvres in western Russia in what appeared
designed as a show of strength.
Russia’s Black Sea fleet denied reports that it had given
Ukrainian forces in Crimea an ultimatum to surrender by early on
Tuesday or face a military assault, Interfax news agency said
after earlier reporting such a threat.
The U.S. State Department said if true, an ultimatum would
be a dangerous escalation of the crisis. The United States was
likely to move down the path of imposing sanctions, it said.
Ukraine’s acting president said Russia’s military presence
in Crimea was growing, and Ukrainian officials said Russia was
building up armour on its side of a narrow stretch of water
closest to Crimea after Putin declared at the weekend he had the
right to invade to protect Russian interests and citizens.
Both sides have so far avoided bloodshed, but the market
turmoil highlighted damage the crisis could wreak on Russia’s
vulnerable economy, making it harder to balance the budget and
potentially undermining business and public support for Putin.
Russian Deputy Economy Minister Andrei Klepach said market
“hysteria” would subside but strains with Brussels and
Washington – which has threatened visa bans, asset freezes and
trade curbs – would continue to weigh on the economy.
On the ground in Perevalnoye, half way between the Crimean
capital of Simferopol and the Black Sea, hundreds of Russian
troops in trucks and armoured vehicles – without national
insignia on their uniforms – were surrounding two military
compounds, confining Ukrainian soldiers, who have refused to
surrender, as virtual prisoners.
Ukraine called up reservists on Sunday after Putin’s action
provoked what British Foreign Secretary William Hague called
“the biggest crisis in Europe in the twenty-first century”.
NATO allies will hold emergency talks on the crisis in
Ukraine on Tuesday, for the second time in three days, following
a request from Poland, the alliance said.
In calling the meeting, Poland, a neighbour of Ukraine,
invoked a NATO rule allowing any ally to consult with the others
if it feels its security, territorial integrity or independence
are under threat, the so-called Article 4.
European Union foreign ministers held out the threat of
sanctions against Russia on Monday if Moscow fails to withdraw
its troops from Ukraine, while offering to mediate between the
two, alongside other international bodies.
At talks in Brussels, they agreed no deadlines or details
about any punitive measures against Russia, but leaders of the
bloc’s 28 nations will hold an emergency summit on Thursday.
OBSERVER MISSION
The Organisation for Security and Cooperation in Europe
(OSCE) said it was trying to convene an international contact
group to help defuse the crisis after Germany said Chancellor
Angela Merkel had convinced Putin to accept such an initiative.
Switzerland, which chairs the pan-European security body,
said the group would support Ukraine during its transition and
coordinate aid and could also discuss sending observers to
monitor the rights of national minorities.
“There will be very, very broad consensus for that
monitoring mission. We call on Russia to join that consensus,
make the right choice and pull back its forces,” U.S. Assistant
Secretary of State Victoria Nuland told OSCE envoys in Vienna.
The Russian central bank raised its key lending rate by 1.5
percentage points after the rouble fell to all-time lows,
closing 2 percent down at 36.50 to the dollar and
1.6 percent lower at 50.38 against the euro.
The MICEX index of Russian shares tumbled 10.8 percent to
close at 1,288.8 points and the dollar-denominated RTS
collapsed 12 percent to 1,115.1 points.
The east-west tension also knocked 2-3 percent off European
stock markets and one percent off Wall Street, and sent safe
haven gold to a four-month high.
Chicago wheat futures rose more than 5 percent and corn
about 4 percent as tensions in Ukraine stoked fears of
disruption to shipments from the Black Sea, one of the world’s
key grain-exporting zones
Russian gas monopoly Gazprom, which supplies
Europe through Ukraine, was down nearly 14 percent.
Gazprom’s finance chief warned Ukraine that it may raise gas
prices from next month, accusing Kiev of a patchy payments
record, but said gas transit to Europe was normal. Ukraine has
been stocking up on gas imports in the last few days to beat a
feared rise, a spokesman for its gas transit monopoly said.
Ukraine’s Prime Minister Arseny Yatseniuk, head of a
pro-Western government that took power when former president
Viktor Yanukovich, a Russian ally, fled on Feb. 21 after three
months of street protests against his rule, said Putin had
effectively declared war on his country.
Yatseniuk said the government planned to cut spending by 14
to 16 percent as Ukraine prepared for talks on Tuesday with the
International Monetary Fund to avert the danger of default.
Western leaders have sent a barrage of warnings to Putin
against armed action, threatening economic and diplomatic
consequences, but are not considering a military response.
A Ukrainian border guard spokesman said Russian ships had
been moving around the Crimean port city of Sevastopol, where
the Russian Black Sea Fleet has a base, and Russian forces had
blocked mobile telephone services in some parts of Crimea.
He said Moscow was building up its armour near a ferry port
on Russia’s side of the 4.5 km (three mile) wide Kerch Strait,
which separates Crimea from Russia.
Russian Prime Minister Dmitry Medvedev issued an order on
Monday to push ahead with a plan agreed with the previous Kiev
government to build a bridge over the strait, which would be its
first direct land link to Crimea bypassing Ukraine.
RUSSIAN FLAGS FLYING
Russian forces seized Crimea, an isolated Black Sea
peninsula with an ethnic Russian majority, without firing a
shot. All eyes are now on whether Russia makes a military move
in predominantly Russian-speaking eastern Ukraine, where
pro-Moscow demonstrators have marched and raised Russian flags
over public buildings in several cities in the last three days.
Pro-Russian protesters besieged lawmakers inside the
regional government building in the eastern city of Donetsk,
Yanukovich’s hometown, on Monday in the latest such action.
Russia has staged war games with 150,000 troops along the
land border, but so far they have not crossed. Kiev says Moscow
is orchestrating the protests to justify a wider invasion.
Ukraine’s security council has ordered all armed forces to
be put on highest alert. However, Kiev’s small, under-equipped
military is seen as no match for Russia’s superpower might.
While the EU and NATO stepped up verbal pressure on Moscow,
a German spokesman said Merkel believed it was not too late to
resolve the Ukrainian crisis by political means despite
differences of opinion between Putin and the West.
The German leader, who speaks fluent Russian, has had
several long telephone calls with the German-speaking Putin
since the crisis erupted with mass protests in Kiev, creating a
major policy dilemma for Berlin, which is heavily dependent on
Russian gas and has close economic ties.
So far, the Western response has been largely symbolic.
Obama and others suspended preparations for a G8 summit in
Sochi, where Putin has just finished staging his Winter Olympic
games. Some countries recalled ambassadors.
On Kiev’s Independence Square, known as the Maidan, where
protesters manned barricades for three months to bring down
Yanukovich, crowds were smaller than in the past few days as
people returned to work.
“Crimea, we are with you!” read one placard. “Putin – Hitler
of the 21st century,” read another.
