UPDATE 2-Ukraine pledges gas reform at EU loan talks

* EU hosts meeting on international loan to Ukraine

* Ukraine pledges higher domestic gas bills, other reforms

* Parties to meet again in Kiev next week

(Adds further European Commission comment)

By Pete Harrison

BRUSSELS, July 17 (Reuters) - International lenders and the European Union agreed on Friday to intensify talks with Ukraine over possible loans to help Kiev pay for Russian gas and avert a new crisis that could cut off supplies to Europe.

In return, Ukraine promised to raise household gas prices and enforce payment of bills to strengthen the finances of its national gas company Naftogaz, an EU official said.

The talks are intended to help Naftogaz pay its debts and prevent a repeat of what happened in January when a dispute over payments led Moscow to turn off supplies to Ukraine of Russian gas destined for Europe for two weeks.

Payment difficulties in recent weeks have increased European fears of another gas crisis. Divisions in Ukraine's political leadership and the tension in relations with former Soviet master Russia have heightened concerns.

"The European Commission, international financial institutions, Ukraine and Russia had a very good series of meetings," Commission spokesman Mark Gray said after talks hosted by the EU in Brussels. "It has been agreed to intensify these talks."

"Ukraine has made a number of important commitments on its reform of the gas sector," Gray said, adding that a further meeting would take place next week in Kiev.

"The Commission and international financial institutions have asked for more precision on a number of time scales of reforms," he added.

Mounting debts at Naftogaz threaten its ability to put gas bought from Russia into storage before the winter. It needs to do so to ensure steady flows to Europe during the cold months when consumption soars by about a third.

Ukraine needs at least $2 billion to do that, and is trying to borrow as much as $4 billion.

POLITICAL RIVALRY

Banks are wary of pouring money into Naftogaz without assurances it will be radically restructured to cope with Ukraine's economic crisis.

The rivalry between Prime Minister Yulia Tymoshenko and President Viktor Yushchenko is another cause for concern in the country, which lies between Russia and the European Union and faces a presidential election in January.

At Friday's meeting, lenders including the International Monetary Fund (IMF) sought assurances that Naftogaz and Ukraine's energy laws would be reformed to ensure the state-owned company does not permanently bleed cash.

Ukrainian households typically pay less for the gas they consume than Naftogaz pays to buy it from Russia.

In future, Ukrainian consumers might be forced to pay for their gas in advance, households could face higher tariffs and companies that failed to pay their bills could be disconnected, the EU official said.

Tymoshenko promised European Commission President Jose Manuel Barroso in a letter before Friday's talks that many gas tariffs would be raised to economically viable levels in the next 18 months, the EU official added.

Tymoshenko said in the letter energy laws would be overhauled and she responded positively to EU demands that Ukraine open up domestic gas exploration to foreign investment. (Editing by Matthew Jones)