* 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
* Biden, EU ministers urge Russian pullback, warn of
* Russian fleet denies ultimatum for surrounded Ukrainian
forces to surrender
* Demonstrators fly Russian flag in south, east Ukraine
By Lidia Kelly and Alissa de Carbonnel
MOSCOW/PEREVALNOYE, Ukraine, March 3 Russia paid
a heavy 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.
U.S. Vice President Joe Biden warned Moscow of "increasing
political and economic isolation" if it did not withdraw troops
and the European Union threatened unspecified "targeted
measures" unless Russia returns its forces to their bases and
opens talks with Ukraine's new government.
In his first public appearance for nearly a week, Putin flew
to watch military manoeuvres in western Russia in what appeared
designed as a show of strength.
Russia's Black Sea fleet denied reports that it had given
Ukrainian forces in Crimea an ultimatum to surrender by early on
Tuesday or face a military assault, Interfax news agency said
after earlier reporting such a threat.
The State Department said that if true, an ultimatum would
be a dangerous escalation of the crisis. The United States was
likely to move down the path of imposing sanctions, it said.
Ukraine's acting president said Russia's military presence
in Crimea was growing, without giving details, and Ukrainian
officials 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
turmoil highlighted 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 continue 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 after Putin's action
provoked what British Foreign Secretary William Hague called
"the biggest crisis in Europe in the twenty-first century".
At a meeting in Brussels, EU foreign ministers condemned
Russia's military action and called for international mediation
to avert further escalation. EU leaders will hold an emergency
summit on Thursday to discuss how to help Ukraine.
An EU statement said that "in the absence of de-escalating
steps by Russia", the 28-nation bloc would decide on steps such
as suspending talks with Moscow on visa liberalisation.
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 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.
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 one percent off Wall Street, 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
stocking up on gas imports in the last few days to beat a feared
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 prepared for talks on Tuesday 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.
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.
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 besieged lawmakers inside the
regional government building in the eastern city of Donetsk,
Yanukovich's hometown, on Monday in the latest 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, 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.