UPDATE 2-EIB freezes activities in Ukraine over violence, EBRD scales back
* European Investment Bank suspends work in Ukraine
* EBRD continues actions, scales back dealing with government
* Economic outlook tough, cbank eyes softer monetary policy (Adds EBRD reaction, economy details, adds dateline)
By Martin Santa and Marc Jones
BRUSSELS/LONDON Feb 19 (Reuters) - The European Investment Bank (EIB) said on Wednesday it had frozen its activities in Ukraine after at least 26 people died in the worst violence since the former Soviet republic gained independence.
The European Bank for Reconstruction and Development (EBRD), the largest financial investor in Ukraine, said it had already scaled back its dealings with Kiev but had not suspended operations.
Ukraine has been gripped by renewed political turmoil since November, when President Viktor Yanukovich spurned a trade pact with the European Union and opted instead for closer economic ties with former Soviet master Russia.
The EIB's recent activities in Ukraine include the extension of a metro line, modernisation of air traffic control facilities and a 220 million euro ($302.52 million)credit line designed to finance small- and medium-scale projects.
"For the time being the situation is so cruel that it would be politically the wrong signal, but also irresponsible vis-a-vis the people we asked to do the job, to be active on business in Ukraine," EIB President Werner Hoyer told a news conference.
The EIB signed financing contracts with Ukraine between 2007 and 2013 totalling 2.149 billion euros.
The European Union, which controls the EIB, said earlier it was moving to impose sanctions on officials who ordered the use of force against Ukrainian protesters.
Hoyer said the bank had put its activities on hold and would wait to see how the situation in Kiev developed.
"We are presently not active with further projects because we need to know in what political environment we are going to be able to move in the future," Hoyer said after presenting the bank's 2013 results to media in Brussels.
"For the time being we do not negotiate. There was (a) plan for exploring a couple of fields of investor activities, which would require travel to Ukraine and I stopped that last night," he said.
PRIVATE SECTOR FOCUS
The EBRD's net investment in Ukraine reached 8.7 billion euros by the end of the last year, in projects focused on a stable and open banking system, modernisation of infrastructure and promotion of sustainable and efficient energy use.
"We have not suspended our operations in Ukraine, however, as of about three weeks ago, we are concentrating primarily on the private sector," the spokesman for the EBRD said.
EIB's Hoyer said he would wait for an official response from an extraordinary meeting of the European Union's foreign ministers due on Thursday before deciding on further actions.
"I think it would be completely the wrong signal to appear as being the ones who do business as usual in Ukraine while the people on the streets of Kiev...are being slaughtered," he said.
Ukraine's economy, dominated by steel and grain exports, has so far been protected from deeper disruption due to the political turmoil thanks to receiving part of a $15 billion bailout package from Russia, but the outlook remains tough.
Prior to Moscow's offer of aid, Kiev had been in prolonged discussions with the International Monetary Fund over a new loan program, after its prior $15-billion IMF loan lapsed in 2011 over Kiev's refusal to end costly energy subsidies.
Analysts polled by Reuters expected the GDP to shrink by 0.5 percent in 2013 after it grew 0.2 percent in 2012 and the Ukraine's central bank said last month a softer monetary policy was needed to try to kickstart growth.
Ukraine's hryvnia weakened to beyond 9 to the dollar on Wednesday for the second time in February in the wake of the deepening political crisis, with dealers saying a dimmed political outlook was keeping the currency under pressure. ($1 = 0.7272 euros) (Reporting by Martin Santa in Brussels and Marc Jones in London; Editing by John Stonestreet)