* Former Soviet republics to start trade talks in Moscow
* Russia banned Georgian wine and mineral water in 2006
* Russia and pro-Western Georgia fought a five-day war in 2008
* Breakaway regions a big obstacle to reconciliation
By Margarita Antidze
BORJOMI, Georgia, Feb 1 (Reuters) - If there's a way to dilute the bitterness in relations between Russia and Georgia after a 2008 war, it may lie in a lush valley south of the Caucasus Mountain border between the feuding former Soviet republics.
Here flows Borjomi, a naturally carbonated mineral water of volcanic origin that had been popular in Russia since the 19th century until it was swept off the shelves when Moscow banned Georgian beverages and other products in 2006 as tensions built toward the five-day war.
Borjomi, a resort town with a mix of grand Soviet-era sanatoriums and drab apartment blocks, sent 60 percent of its production to Russia before the ban, and output plunged 43 percent to 63 million litres in 2006.
Though the town has since found other markets that more than make up for that loss, it and other producers of Georgian waters and wines would dearly love to get back into the Russian market, with its 142 million people.
They might soon get the chance.
A Georgian delegation is due in Moscow on Monday to discuss reviving trade links with Russia, and perhaps a glimmer of the warmth missing from relations since the war stoked by rising tension over Kremlin influence on two rebel regions and Georgian President Mikheil Saakashvili's drive to join NATO.
The talks follow other tentative steps to thaw the chill since Bidzina Ivanishvili, a tycoon who made billions in 1990s Russia, became Georgia's prime minister after leading an opposition coalition to victory over Saakashvili's party in an October parliamentary vote.
The nations held their first direct talks about bilateral relations in Geneva in December, and last month the Georgian Orthodox Church leader Ilia II, one of the most respected figures in Georgia, met with his Russian Orthodox counterpart and President Vladimir Putin.
SYMBOL OF GEORGIA
Borjomi water is not just central to the town, but also to Georgia.
Murad Sultanov, the manager of a Georgian restaurant in central Moscow, says he wouldn't hesitate to stock it if the officials find agreement.
"It's a symbol of Georgia - Georgia and Borjomi are one and the same," he said.
Russians have also been central to Borjomi in their nearly 200-year domination of Georgia before the Soviet Union fell in 1991. In Europe it was called the "Russian Vichy" after the famous French spa town.
Roza Choladze, a 78-year-old who sells pinecone jam from a street stall in Borjomi to supplement her monthly pension of 120 lari ($73), said the valley used to draw visitors from across the former Soviet Union.
"But after our relations deteriorated a few years ago, we don't see tourists from Russia any more," she said. "I hope that will change soon."
Ivanishvili's ascent swiftly unlocked the door to improvements in ties, which had nowhere to go but up.
Putin and Saakashvili have traded pointed, physically graphic personal barbs, and the Kremlin will not talk to the Georgian president, a U.S. ally who was long a darling of the West but is portrayed in Russia as a bloodthirsty tyrant.
Ivanishvili, who fought off Saakashvili's attempts to brand him a Russian stooge during the parliamentary election, has walked the thin line between Georgians' resentment of the Kremlin and their hopes for better trade and interpersonal ties.
Diplomatic relations were severed over the war, and their restoration is not on the agenda.
Ivanishvili has assured the nation of 4.5 million that close ties with the United States and integration with Europe would remain the priority but that he would also try to rebuild relations with Russia.
That is a tall order for a country that straddles a Europe-bound energy pipeline route bypassing Russia and has been the subject of geopolitical jostling between Moscow and Washington, which fed into the tension leading to the war.
Russian forces repelled a Georgian offensive on South Ossetia and drove deep into the country before the European Union brokered a ceasefire whose terms the United States and EU accuse Russia of violating.
Russia's strong support for the breakaway Georgian regions of South Ossetia and Abkhazia, which Moscow recognised as independent nations after the war, is a major obstacle to a real reconciliation.
Moscow wants better ties "in those areas where that is realistic and possible", Russian Foreign Ministry spokesman Alexander Lukashevich said on Thursday.
Trade is one of those areas. When Russia banned Georgian wine and water, it cited concerns about quality, but few people believed that was the real reason.
Gennady Onishchenko, the acerbic Russian consumer protection agency chief who announced the ban back in 2006, has said the talks will go smoothly "if we have a businesslike conversation" - one devoid of politics, that is.
"Georgian products are in conformity with standards and deserve to be back (on the Russian market)," said Levan Davitashvili, the head of the National Wine Agency, who will lead the Georgian delegation.
Russian billionaire Mikhail Fridman's Alfa Group has bought a controlling stake in mineral water producer IDS Borjomi, according to the previous owners of the stake, a deal that could help the water flow back into Russia.
But Lukashevich said South Ossetia and Abkhazia "are not disputed territories but independent states, and the sooner Georgia's leadership understands this is the new geopolitical reality ... the easier the settlement process will be".
No leader of Georgia, where refugees from both regions dream of returning to their lost homes, can accept that claim.
"I do not see the new Georgian government making any concessions on the issue of the sovereignty of those two territories," said Thomas de Waal, a Caucasus expert at the Carnegie Endowment for International Peace in Washington.
"When it comes to Abkhazia and South Ossetia, Tbilisi and Moscow still hold fundamentally incompatible positions." (Additional reporting by Sonia Elks in Moscow; Editing by Steve Gutterman and Will Waterman)