UPDATE 2-Russia faces more sanctions if Ukraine vote disrupted- U.S. official

Thu May 15, 2014 12:39pm EDT

(Adds British Foreign Secretary)

By Lesley Wroughton and William James

LONDON May 15 (Reuters) - The United States and its European allies agreed on Thursday that Russia should face broader economic and industrial sanctions if the Kremlin meddled in Ukrainian elections later this month, a U.S. official said.

U.S. Secretary of State John Kerry briefed Germany, France, Britain and Italy on Washington's thinking on possible sanctions on some of the Russian economy's largest sectors including mining, gas, banking, finance and defence, the official added.

The next phase of punitive measures would use "a scalpel rather than a hammer" and would focus on new investment in those areas, the official told reporters after Kerry's meeting with his European counterparts in London.

Ukraine's interim leaders hope elections on May 25 will bring political stability after five months of upheaval including Russia's annexation of Crimea and pro-Russian separatist rebellions in the east.

Washington and the EU and have already imposed several rounds of sanctions on Russian individuals and some companies, accusing Russian President Vladimir Putin of stoking the eastern rebellions, a charge Putin has denied.

"All ministers, led by Secretary Kerry, underscored that a free, fair election across Ukraine, including in the east, on May 25 is absolutely essential," the senior State Department official, who spoke on condition of anonymity, told reporters.

"There was broad unity in the room that if the elections are disrupted and Moscow's hand is behind that, that we need to move to sectoral sanctions," the official said. "There was no dissent on that subject."

Kerry told the European powers the sectoral sanctions could be imposed on Russia without hurting themselves or the broader global economy, the official said.

"We have been pretty clear in being able to pinpoint and expose ... when Moscow's hand has been behind past disruptions so I would guess that would be relatively clear should it happen," the official added.

Sanctions have already hurt Russia - Moscow's Economy Minister Alexei Ulyukayev has said the economy will probably enter recession by the end of the second quarter.

British Foreign Secretary William Hague said the Kremlin's approach to the Ukrainian elections would determine whether wider economic and trade sanctions would be applied to Russia.

"We all agreed to continue preparation for these sanctions while of course urging Russia to stop any actions that prevent the elections going ahead peacefully," Hague said after meeting Kerry with counterparts from Germany, France and Italy. (Writing by Guy Faulconbridge, editing by Stephen Addison and Andrew Heavens)