*West appeals to Russia for immediate ceasefire
*Georgia claims Russia wants to overthrow government
*Russian troops push beyond Abkhazia into Georgia
*Sarkozy prepares peace mission to Russia and Georgia
By Matt Robinson
TBILISI, Aug 11 (Reuters) - Western powers appealed to Russia on Monday for an immediate ceasefire in the Caucasus after Moscow pushed troops further into Georgia and Tbilisi shelled the Russian-held region of South Ossetia.
The U.S. State Department said foreign ministers from the Group of Seven industrial nations supported international mediation to end a crisis that risks engulfing the Caucasus, an important energy export route, in war.
They urged Russia to respect the territorial integrity of its former Soviet vassal. Moscow was in no mood to compromise.
"The foreign ministry has to state that the U.S. Department of State is ill-informed. Georgia has not stopped attacks against civilian and Russian peacekeepers in South Ossetia," a Russian Foreign Ministry spokesman said in response.
Russian defence ministry officials said Georgia was heavily shelling South Ossetia -- the province at the centre of the conflict -- despite announcing a ceasefire. A Reuters witness saw Georgian helicopter gunships bombing targets in the area, sending dark smoke billowing into the air.
Escalating the conflict, Russian troops and armoured vehicles moved out of Abkhazia, a second breakaway territory to the west of Ossetia, into Georgia proper.
The Russian Defence Ministry justified the operation in the town of Senaki, which lies outside a security zone along the de facto Abkhaz boundary, by a need to avert fresh Georgian attacks.
"They have advanced in dozens of APCs (armoured personnel carriers) and are now in Senaki," Georgian Interior Ministry spokesman Shota Utiashvili told Reuters.
The development will deepen Western concern of a second front in Russia's conflict with Georgia, after days of intense fighting between the two countries for control of the South Ossetian capital Tskhinvali.
French President Nicolas Sarkozy prepared to fly to Georgia and Russia on Tuesday on a peace mission, following a round of shuttle diplomacy by his foreign minister Bernard Kouchner but it was unclear what his visit could bring.
Saakashvili said he had agreed to a plan proposed by Kouchner under which hostilities would end, a mixed peacekeeping force would be deployed and troops would return to pre-conflict positions.
Relations between Russia and its small, former Soviet neighbour have deteriorated in part because of Georgia's ambition to join NATO and bring the western alliance to Russia's southern border.
The simmering conflict erupted last Thursday when Georgia suddenly sent forces to retake South Ossetia, which threw off Georgian rule in the 1990s.
Moscow responded with a counter-attack by its vastly bigger forces that drove Georgian troops out of the devastated South Ossetian capital Tskhinvali on Sunday. Russia says 1,600 people have been killed in the fighting and thousands more are homeless but these figures are not independently verifiable.
Women and children wept in the streets of Tskhinvali on Monday as they surveyed the destruction amid continued Georgian shelling. Russian troops distributed water and food from trucks.
One elderly resident told Reuters how she sheltered in a cellar with her 7-year-old grandson during the bombardment.
"My grandson screamed: 'Uncle Putin please help us, help us so that the Georgians don't kill me !'. They were screaming and crying it was terrible, a nightmare," she said.
"Thank God the Russians have come. It is getting better."
Russia and Georgia engaged in a bitter war of words on Monday about their conflict, trading numerous claims and counter-claims.
Saakashvili told reporters that Russia "wants to replace the government in Tbilisi" and claimed Moscow wanted to seize control of energy routes in the region.
Prime Minister Vladimir Putin, who has taken a leading role in the crisis, attacked the United States for helping Georgia fly home troops from Iraq and said the West was mistaking the aggressors for victims in the conflict -- a reference to strong Western support for Georgia and criticism of Moscow.
Putin mocked the support given by the West to Saakashvili, comparing him to former Iraqi leader Saddam Hussein, who was hanged in 2006 for executing Shiites.
"They (the Americans) of course had to hang Saddam Hussein for destroying several Shiite villages," Putin said.
"But the current Georgian rulers who in one hour simply wiped 10 Ossetian villages from the face of the earth, the Georgian rulers which used tanks to run over children and the elderly, which threw civilians into cellars and burnt them -- they (Georgian leaders) are players that have to be protected."
Russia said at a daily military briefing that it had lost four military aircraft and 18 soldiers since the fighting started, with another 14 missing in action and 52 wounded.
But Colonel-General Anatoly Nogovitsyn rejected Georgian claims that up to 50 Russian jets had bombed Georgia overnight.
RUSSIAN MARKETS FALL, OIL RISES
Russian financial markets slid to their lowest levels in two years early Monday as investors panicked over the conflict, though Russian stocks later reversed some of their losses on suggestions by President Dmitry Medvedev that the war may be nearing an end.
The benchmark RTS index stood at 1,742 points at 1450 GMT, up 1.18 percent on the day.
Oil prices rose again on Monday after a recent retreat from record levels, with crude topping $116 a barrel. [ID:nL8568888]
A Georgian government source said on Sunday 130 Georgian civilians and military personnel had been killed and 1,165 wounded, many because of Russian bombing inside Georgia. Russia denies hitting civilian targets.
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