UPDATE 3-Putin signals he will work with Ukraine leader, but blasts US
* Putin signals he will work with new Ukraine president
* Criticises U.S. over Ukraine and global economy
* Pledges diversification of exports, boost to banks (Adds EU and Russian documents, quotes)
By Darya Korsunskaya and Timothy Heritage
ST PETERSBURG, Russia, May 23 (Reuters) - President Vladimir Putin appeared to hold out an olive branch on Friday by suggesting he will work with whomever is elected Ukraine's next president and calling for better ties with the West.
But at the same time he fiercely criticised U.S. foreign and economic policy.
In a speech to foreign and Russian businessmen at Russia's answer to the Davos World Economic Forum on the shores of its elegant former imperial capital, Putin acknowledged that U.S. and European Union sanctions were hurting the country's economy.
"We are not planning any self-isolation," Putin said, proposing dialogue and cooperation to show that Russia is open for business and, perhaps, to head off more sanctions.
"We hope that common sense ... will prompt our European and U.S. partners to work with Russia."
Asked whether Russia will recognise the legitimacy of Sunday's presidential election in Ukraine, he also sounded conciliatory, saying: "We will treat the choice of the Ukrainian people with respect."
That was a sign of goodwill after weeks of criticising the election, which had raised the prospect of Russia not recognising the new leader's legitimacy. Putin added that "after the election we will work with the newly elected structure."
But, describing Ukraine as in civil war, he peppered his speech with criticism of the United States, accusing it of instigating a coup d'etat in the ex-Soviet republic, aggravating global economic problems and suggesting it wanted to draw Kiev into former Cold War foe NATO.
"The world has changed," Putin said. "The unipolar vision of the world ... has failed."
Reverting repeatedly to the anti-U.S. rhetoric that has been a hallmark of his third term as president since May 2012, he appeared to try to drive a wedge between the United States and Europe by praising European companies for being more pragmatic in their softer response to Russia's annexation of Crimea.
Underlining his discontent with the United States over Ukraine, he highlighted Russia's growing ties with Beijing by inviting on to the stage visiting Chinese Vice President Li Yuanchao.
As ties with the West sour, Russia has nurtured relations with Asia, and signed a 30-year, $400-billion natural gas supply deal with China this week when Putin was visiting Shanghai.
"REAL IMPACT" OF SANCTIONS
"A civil war is raging through Ukraine. But why are we the ones who are being blamed for this?" Putin asked at one point, venting his frustration with a situation in which he portrays Russia as misunderstood and not treated as an equal.
Such thinking is now pervasive in the Russian political establishment but so too is the growing sentiment that the sanctions, mainly visa bans and asset freezes on individuals and companies close to Putin, are having a serious effect.
Putin acknowledged this more openly than previously, saying: "The sanctions ... are having a real impact."
Russia is sliding into recession and capital flight has accelerated this year as the crisis in Ukraine caused the biggest East-West standoff since the Cold War.
Russia seized and annexed Crimea in March and has since then massed tens of thousands of troops on the frontier. Kiev and its Western allies say Moscow is behind an uprising in eastern Ukraine by armed separatists who have declared independence and called for Russian military support.
Washington and Brussels have threatened to impose much tougher sanctions if Moscow interferes with the vote in Ukraine, which it regards as the cradle of the Russian state.
Underlining Russia's concerns about more sanctions, Putin's top economic aide, Andrei Belousov, told Rossiya-24 television a classified document had been prepared outlining retaliatory moves by Moscow. He gave no details.
An EU document showed measures being considered if Russia meddles in Ukraine's election include restrictions ranging from imports of luxury goods such as caviar and diamonds to an oil and gas ban.
Addressing the decline of Russia's $2 trillion economy, Putin said his country must reduce reliance on energy exports which provide about 25 percent of gross domestic product, and said Russia must boost major domestic banks and industries.
Putin also said there was a plan to create a state fund to help replace imports from Western countries with domestic production and underlined that trade with China would be a priority. He gave few details, however, of how he would try to revive one of the world's biggest economies.
(Reporting by Darya Korsunskaya; Writing by Timothy Heritage; Editing by Lidia Kelly, Giles Elgood, Janet McBride)