* Moscow stocks fall 11.3 pct, rouble down 2.5 pct over war
* Ukraine border guards say build-up of Russian armoured
vehicles near Crimea
* EU ministers meet, seeking mediation before any sanctions
* Russian troops surround Ukrainian forces at two Crimea
* Demonstrators fly Russian flag in south, east Ukraine
By Lidia Kelly and Alissa de Carbonnel
MOSCOW/PEREVALNOYE, Ukraine, March 3 Russia paid
a financial price on Monday for its military intervention in
neighbouring Ukraine, with stocks, bonds and the rouble plunging
as President Vladimir Putin's forces tightened their grip on the
Russian-speaking Crimea region.
The Moscow stock market fell by 11.3 percent, wiping nearly
$60 billion off the value of Russian companies in a day, and the
central bank spent $10 billion of its reserves to prop up the
rouble as investors took fright at escalating tensions with the
West over the former Soviet republic.
Interfax news agency quoted a Ukrainian Defence Ministry
source as saying Russia's Black Sea fleet had given Ukrainian
forces in Crimea until 0300 GMT on Tuesday to surrender or face
a military assault. Oleh Chubuk, a spokesman for the Ukrainian
navy, said: "We know nothing about this."
Ukraine said Russia was building up armoured vehicles on its
side of a narrow stretch of water closest to Crimea after Putin
declared at the weekend he had the right to invade his neighbour
to protect Russian interests and citizens.
Both sides have so far avoided bloodshed, but the market
rout highlighted the damage the crisis could wreak on Russia's
vulnerable economy, making it harder to balance the budget and
potentially undermining business and public support for Putin.
Russian Deputy Economy Minister Andrei Klepach said market
"hysteria" would subside but strains with Brussels and
Washington - which has threatened visa bans, asset freezes and
trade curbs - would remain to weigh on the economy.
On the ground in Perevalnoye, half way between the Crimean
capital of Simferopol and the Black Sea, hundreds of Russian
troops in trucks and armoured vehicles - without national
insignia on their uniforms - were surrounding two military
compounds, confining Ukrainian soldiers, who have refused to
surrender, as virtual prisoners.
Ukraine called up reservists on Sunday and Washington
threatened to isolate Russia economically after Putin's action
provoked what Britain's foreign minister called "the biggest
crisis in Europe in the twenty-first century".
European Union foreign ministers began emergency talks on
Ukraine but diplomats said they would press for mediation to
prevent escalation and hold in reserve the possibility of
economic sanctions. A draft statement said the EU had decided to
suspend talks with Russia on visa liberalisation because of the
seizure of Crimea.
The Organization for Security and Cooperation in Europe
(OSCE) said it was trying to convene an international contact
group to help defuse the crisis after Germany said Chancellor
Angela Merkel had convinced Putin to accept such an initiative.
Switzerland, which chairs the pan-European security body,
said the contact group would support Ukraine during its
transition and coordinate aid and could also discuss sending
observers to monitor the rights of national minorities.
The United States urged Moscow to support sending OSCE
observers to Ukraine to help defuse tension.
"There will be very, very broad consensus for that
monitoring mission. We call on Russia to join that consensus,
make the right choice and pull back its forces," U.S. Assistant
Secretary of State Victoria Nuland told OSCE envoys in Vienna.
MARKETS TUMBLE, GAZPROM HIT
The Russian central bank raised its key lending rate by 1.5
percentage points after the rouble fell to all-time lows against
the dollar. The MICEX index of Moscow stocks
tumbled 11.5 percent to 1,278 points at 1400 GMT. That meant the
market capitalisation of the rouble-denominated index had fallen
$58.4 billion since Friday's close.
The east-west tension also knocked 2-3 percent off European
stock markets and sent safe haven gold to a four-month high.
Chicago wheat futures rose more than 5 percent and corn
about 4 percent as tensions in Ukraine stoked fears of
disruption to shipments from the Black Sea, one of the world's
key grain-exporting zones
Russian gas monopoly Gazprom, which supplies
Europe through Ukraine, was down nearly 14 percent.
Gazprom's finance chief warned Ukraine that it may raise gas
prices from next month, accusing Kiev of a patchy payments
record, but said gas transit to Europe was normal. Ukraine has
increased gas imports in the last few days to beat a feared
price rise, a spokesman for its gas transit monopoly said.
Ukraine's Prime Minister Arseny Yatseniuk, head of a
pro-Western government that took power when former president
Viktor Yanukovich, a Russian ally, fled on Feb. 21 after three
months of street protests against his rule, said Putin had
effectively declared war on his country.
Yatseniuk said the government planned to cut spending by 14
to 16 percent as Ukraine prepares for talks with the
International Monetary Fund to avert the danger of default.
Western leaders have sent a barrage of warnings to Putin
against armed action, threatening economic and diplomatic
consequences, but are not considering a military response.
A Ukrainian border guard spokesman said Russian ships had
been moving around the Crimean port city of Sevastopol, where
the Russian Black Sea Fleet has a base, and Russian forces had
blocked mobile telephone services in some parts of Crimea.
He said Moscow was building up its armour near a ferry port
on Russia's side of the 4.5 km (three mile) wide Kerch Strait,
which separates Crimea from Russia.
"There are armoured vehicles on the other side of the
strait. We can't predict whether or not they will put any
vehicles on the ferry," the spokesman said by telephone.
Russian Prime Minister Dmitry Medvedev issued an order on
Monday to push ahead with a plan agreed with the previous Kiev
government to build a bridge over the strait, which would be its
first direct land link to Crimea bypassing Ukraine.
RUSSIAN FLAGS FLYING
Russian forces have seized Crimea - an isolated Black Sea
peninsula with an ethnic Russian majority, where Moscow has a
naval base - without firing a shot.
On Sunday they surrounded several small Ukrainian military
outposts there and demanded the Ukrainian troops disarm. Some
refused, leading to stand-offs, but no fighting.
All eyes are now on whether Russia makes a military move in
predominantly Russian-speaking eastern Ukraine, where pro-Moscow
demonstrators have marched and raised Russian flags over public
buildings in several cities in the last three days.
Pro-Russian protesters occupied the first floor of the
regional government building in the eastern city of Donetsk,
Yanukovich's hometown, on Monday in the lastest such action.
Russia has staged war games with 150,000 troops along the
land border, but so far they have not crossed. Kiev says Moscow
is orchestrating the protests to justify a wider invasion.
Ukraine's security council has ordered the general staff to
immediately put all armed forces on highest alert. However,
Kiev's small and underequipped military is seen as no match for
Russia's superpower might.
While the EU and NATO stepped up verbal pressure on Moscow,
a German spokesman said Merkel believed it was not too late to
resolve the Ukrainian crisis by political means despite
differences of opinion between Putin and the West.
The German leader, who speaks fluent Russian, has had
several long telephone calls with the German-speaking Putin
since the crisis erupted with mass protests in Kiev, creating a
major policy dilemma for Berlin which is heavily dependent on
Russian gas and has close economic ties.
"There is no doubt President Putin has a completely
different view on the situation and events in Crimea from the
German government and our Western partners," spokesman Steffen
Seibert told reporters. But he added: "It is still not too late
to resolve this crisis peacefully by political means."
So far, the Western response has been largely symbolic.
Obama and others suspended preparations for a G8 summit in
Sochi, where Putin has just finished staging his $50 billion
winter Olympic games. Some countries recalled ambassadors.
On Kiev's Independence Square, known as the Maidan, where
protesters manned barricades for three months to bring down
Yanukovich, the morning crowds were smaller than in the past few
days as people returned to work.
"Crimea, we are with you!" read one placard. "Putin - Hitler
of the 21st century," read another.
Sergei Lavreynenko, 44, a librarian from Kiev, said
Ukrainians were ready to take up arms to defend the country, and
were frustrated at mixed messages from the authorities.
"Of course we are all ready to go," he said next to a
display of homemade mortar tubes and molotov cocktails used in
the uprising against Yanukovich. "We have all served in the
military. We have military specialisms. If we can build our own
mortar tube like that, we can do even better.... But it needs to
be organised. You can't just get a bunch of guys, grab sticks
and clubs and race off to Crimea."
Britain's International Institute for Strategic Studies
estimates Kiev has fewer than 130,000 troops under arms, with
few planes fit to fly and few spare parts for a lone submarine.
Russia, by contrast, has spent billions under Putin to
upgrade and modernise the capabilities of forces that were
dilapidated after the breakup of the Soviet Union. Moscow's
special units are now seen as equals of the best in the world.