(Adds Obama announcing new measures)
* European officials agree sanctions
* U.S. expands measures against Ukraine
* International experts unable to get to crash site again
* Ukraine accuses Russia of cross-border shelling
By Justyna Pawlak and Eric Beech
BRUSSELS/WASHINGTON, July 29 The European Union
and the United States on Tuesday announced further sanctions
against Russia, targeting its energy, banking and defence
sectors in the strongest international action yet over Moscow's
support for rebels in eastern Ukraine.
The measures mark the start of a new phase in the biggest
confrontation between Moscow and the West since the Cold War,
which worsened dramatically after the downing of Malaysian
flight MH17 over rebel-held territory on July 17 by what Western
countries say was a Russian-supplied missile.
"If Russia continues on this current path, the costs on
Russia will continue to grow," President Barack Obama said in
"Russia's actions in Ukraine and the sanctions that we've
already imposed have made a weak Russian economy even weaker,"
In Brussels, diplomats said ambassadors from the 28-member
European bloc agreed to restrictions on trade of equipment for
the oil and defence sectors, and "dual use" technology with both
defence and civilian purposes. Russia's state run banks would be
barred from raising funds in European capital markets. The
measures would be reviewed in three months.
German Chancellor Angela Merkel, who had been reluctant to
step up sanctions before the crash because of her country's
trade links with Russia, said the latest EU measures were
Previously Europe had imposed sanctions only on individuals
and organisations accused of direct involvement in threatening
Ukraine, and had shied away from wider "sectoral sanctions"
designed to damage its biggest energy supplier.
The new measures were coordinated with Washington in the
hope that Russian President Vladimir Putin will back down from a
months-long campaign to seize territory and disrupt Ukraine,
whose pro-Moscow leader was toppled in February.
But Putin has shown no sign of backing down. Indeed, despite
the international condemnation following the downing of the
airliner, Western countries say the Kremlin has stepped up
support for separatists by sending them more heavy weaponry.
Moscow denies it is arming the rebels, protestations that
are ridiculed in the West.
On the ground on Tuesday, intense fighting between
government troops and pro-Russian rebels killed dozens of
civilians, soldiers and rebels over the past 24 hours, as Kiev
pressed on with an offensive to defeat the Moscow-backed revolt.
Shells hit the centre of Donetsk, a city with a pre-war
population of nearly a million people where residents fear they
will be trapped on a battlefield between advancing Ukrainian
troops and Russian-backed rebels who have vowed to make a stand.
Ukrainian forces have been pushing rebel units back towards
their two main urban strongholds of Donetsk and Luhansk and have
sought to encircle them in several places.
The government says its forces have retaken several villages
in the rolling countryside near where the airliner crashed,
killing all 298 passengers, most of them Dutch.
In Donetsk, the body of a dead man lay in rubble behind a
badly damaged 10-storey residential building close to the city
centre, hit by shelling. Rebels at the scene placed body parts
on a nylon sheet and carried it on a stretcher to a green van.
"There, that's their 'separatists'. That's their 'rebel
commander'," said a distressed woman in her 60s, gesturing
towards the body. "They are killing neighbours. They are killing
people, ordinary people."
Another middle-aged woman, who gave her name as Katarina,
charged out of the building next door carrying two bags.
"No more! I cannot live in this death row any more!" she
said. "I am leaving! I don't know where!"
Donetsk officials said two people were killed in the
shelling of the city.
Municipal officials said up to 17 people, including
children, were killed in fighting on Monday evening in the town
of Horlivka, a rebel stronghold north of Donetsk that saw fierce
battles between the rival forces in the last few days.
In the city of Luhansk, officials said five civilians were
killed when shelling hit a retirement home.
"The enemy is throwing everything it has into the battle to
complete encirclement of the DNR," Igor Strelkov, a Muscovite
rebel commander, told journalists in Donetsk on Monday evening,
referring to the self-proclaimed "Donetsk People's Republic".
A rebel source in Donetsk said reinforcements including
military equipment and fighters had arrived across the border
from Russia. Reuters was not able to confirm that independently.
A spokesman for Ukraine's Security Council, Andriy Lysenko,
blamed Russia for shelling a Ukrainian border crossing point and
military positions from across the border to help the rebels.
Moscow has also accused Ukraine of firing across the frontier.
Washington says the airliner was almost certainly shot down
accidentally by rebels using a Russian missile.
BANKING, TECHNOLOGY, ARMS
Leaders of the United States and major European powers
agreed in a teleconference on Monday to impose sanctions on
Russia's banking, technology and arms sectors.
The U.S. Treasury imposed sanctions on more Russian banks,
targeting VTB, the Bank of Moscow, and the Russian Agriculture
Bank, as well as the United Shipbuilding Corp.
Winning support from the EU for sanctions was the trickier
task, because the European bloc does more than 10 times as much
trade with Russia as the United States does and its 28 member
states must agree unanimously on any measures.
To mitigate the impact on Europe's own economy, the new
sanctions will not affect previous contracts, which means France
will be allowed to go ahead with delivery of a naval helicopter
carrier it has already sold to Russia. Russia's oil industry has
been targeted but its natural gas, which powers European
industry and lights its cities, has been spared.
Russia is the world's biggest exporter of natural gas and
second biggest exporter of oil.
Still, some European countries and companies will face real
pain. British energy giant BP, the biggest foreign
investor in Russia with a near 20 percent stake in Russia's
biggest oil company Rosneft, complained its business
could be hurt.
London's financial services hub could face disproportionate
harm from measures against Russian banks. German manufacturing
firms could lose customers. European banks and other creditors
that are owed money by Russians may face a greater risk that
clients will have trouble refinancing or repaying their loans.
"These sanctions are harder than anything we have ever had
before," said James Nixey of British think tank Chatham House.
"It will hurt a little bit but it's a down payment on the future
security of Europe. It's a question of Western credibility."
Meanwhile on the ground, fighting has only intensified since
the air crash, with Ukrainian government forces trying to press
on with an offensive that saw them push rebels out of their
bastion of Slaviansk at the start of the month.
Rebels who retreated from Slaviansk to Donetsk say they will
make a stand inside the city. Fighting has also intensified in
towns and villages near the border, where the government aims to
block rebel reinforcements and arms shipments from Russia.
Ukraine military spokesman Lysenko said 10 Ukrainian
soldiers were killed over the last 24 hours. Rebel commander
Strelkov said his side had lost 30 fighters killed and wounded.
Plans to open a humanitarian corridor in Luhansk to allow
residents to flee the fighting failed. The United Nations says
more than 100,000 people have already fled the east so far.
Violence in the region also frustrated international
experts' efforts to access the plane crash site for a third day.
A Dutch police mission said it abandoned plans to travel there
on Tuesday because of fighting along the route.
Fighting has impeded recovery of some of the remains from
flight MH17 and made it impossible to reach the site to
investigate the cause of the crash. Kiev and the rebels accuse
each other of fighting in the area to keep inspectors away.
(Additional reporting by Natalia Zinets and Gabriela Baczynska
in Kiev, Barbara Lewis, Julia Fioretti and Tom Koerkemeier in
Brussels and Anthony Deutsch in Amsterdam; Writing by Peter
Graff; Editing by Giles Elgood)