* Obama warns of further sanctions, says American among dead
* Ukraine says rebel missile shoots down Boeing 777 with 298 aboard
* Rebels deny role, though have said recently they have such missiles
* Netherlands in mourning, more than half those aboard were Dutch (Releads with Obama, American killed)
By Anton Zverev
HRABOVE, Ukraine, July 18 (Reuters) - U.S. President Barack Obama demanded Russia stop supporting separatists in eastern Ukraine after the downing of a Malaysian airline by a surface-to-air missile he said was fired from rebel territory raised the prospect of more sanctions on Moscow.
At least one American was among the almost 300 killed, he said, a revelation that raises the stakes in a pivotal incident in deteriorating relations between Russia and the West.
Calling it “an outrage of unspeakable proportions”, Obama stopped short of directly blaming Russia for the incident but warned that he was prepared to tighten economic sanctions. He echoed international calls for a rapid and credible investigation and ruling out U.S. military intervention.
But, noting the global impact of the crash, with victims from 11 countries across four continents, he said the stakes were high for Europe, a clear call for it to follow the more robust sanctions on Russia already imposed by Washington.
Russia, whom Obama said was letting the rebels bring in weapons, has expressed anger at implications it was to blame, saying people should not prejudge the outcome of the inquiry.
There were no survivors from the Malaysia Airlines flight MH17 from Amsterdam to Kuala Lumpur, a Boeing 777. The United Nations said 80 of the 298 aboard were children. The deadliest attack on a commercial airliner, it scattered bodies over miles of rebel-held territory near the border with Russia.
Makeshift white flags marked where bodies lay in corn fields and among the debris. Others, stripped bare by the force of the crash, had been covered by polythene sheeting weighed down by stones, one marked with a flower in remembrance.
One pensioner told how a woman smashed though her roof: “There was a howling noise and everything started to rattle. Then objects started falling out of the sky,” said Irina Tipunova, 65. “And then I heard a roar and she landed in the kitchen.”
An American-Dutch dual national was confirmed aboard - more than half those who died were Dutch - and U.S. investigators prepared to head to Ukraine to assist in the investigation.
Staff from Europe’s OSCE security body visited the site but complained that they did not have the full access they wanted.
The scale of the disaster could prove a turning point for international pressure to resolve the crisis in Ukraine, which has killed hundreds since pro-Western protests toppled the Moscow-backed president in Kiev in February and Russia annexed the Crimea peninsula a month later.
“This outrageous event underscores that it is time for peace and security to be restored in Ukraine,” Obama said, adding that Russia had failed to use its influence to curb rebel violence.
While the West has imposed sanctions on Russia over Ukraine, the United States has been more aggressive than the European Union. Analysts say the response of Germany and other EU powers to the incident - possibly imposing more sanctions - could be crucial in deciding the next phase of the standoff with Moscow.
Some commentators even recalled Germany’s sinking of the Atlantic liner Lusitania in 1915, which helped push the United States into World War One, but outrage in the West at Thursday’s carnage is not seen as leading to military intervention.
The U.N. Security Council called for a “full, thorough and independent international investigation” into the downing of the plane and “appropriate accountability” for those responsible.
German Chancellor Angela Merkel said it was too early to decide on further sanctions before it was known exactly what had happened to the plane. Britain said the facts must be established by a UN-led investigation before additional sanctions were seriously considered.
Kiev and Moscow immediately blamed each other for the disaster, triggering a new phase in their propaganda war.
The plane crashed about 40 km (25 miles) from the border with Russia near the regional capital of Donetsk, an area that is a stronghold of rebels who have been fighting Ukrainian government forces and have brought down military aircraft.
Leaders of the rebels’ self-proclaimed Donetsk People’s Republic denied any involvement and said a Ukrainian air force jet had brought down the intercontinental flight.
Russia’s Defence Ministry later pointed the finger at Ukrainian ground forces, saying it had picked up radar activity from a Ukrainian missile system south of Donetsk when the airliner was brought down, Russian media reported.
The Ukrainian security council said no missiles had been fired from its armouries. Officials also accused separatists of moving unused missiles into Russia after the incident.
The Ukrainian government released recordings it said were of Russian intelligence officers discussing the shooting down of a civilian airliner by rebels who may have mistaken it for a Ukrainian military plane.
After the downing of several Ukrainian military aircraft in the area in recent months, including two earlier this week, Kiev had accused Russian forces of playing a direct role.
Separatists were quoted in Russian media last month saying they had acquired a long-range SA-11 anti-aircraft system.
Latvia, a former Soviet state which like Ukraine has a large ethnic Russian minority, said Moscow bore “full responsibility” for providing the separatists with missiles. Baltic neighbour Lithuania spoke of “a brutal act of terror”.
The OSCE said 30 observers and experts from the organisation, which has monitors in the region, had reached the site on Friday: “We have to work there quickly to see what’s going on in terms of safety and security of the perimeter, the state of the bodies, the wreckage and also the black boxes,” spokesman Michael Bociurkiw said near the crash scene.
The plane’s two black boxes - voice and data recorders - were recovered, but it was unlikely they could determine it was a missile strike - let alone who launched it.
Further complicating any investigation, local people were seen removing pieces of wreckage as souvenirs. The condition of the metal can indicate if it has been struck by a missile.
Reuters journalists saw burning and charred wreckage bearing the red and blue Malaysia Airlines insignia and dozens of bodies in fields near the village of Hrabove, known in Russian as Grabovo.
Ukraine said on Friday that up to 181 bodies had been found. The airline said it was carrying 283 passengers and 15 crew.
Ukraine has closed air space over the east of the country as Malaysia Airlines defended its use of a route that some other carriers had been avoiding.
More than half of the dead passengers, 189 people, were Dutch. Twenty-nine were Malaysian, 27 Australian, 12 Indonesian, nine British, four German, four Belgian, three Filipino, one America, one Canadian, one New Zealand. Several were unidentified and some may have had dual citizenship. The 15 crew were Malaysian.
A number of those on board were travelling to an international AIDS conference in Melbourne, including Joep Lange, an influential Dutch expert.
“We lost somebody who wanted to make the world a better place,” said his friend Marcel Duyvestijn.
“TRAGIC DAY, TRAGIC YEAR”
The loss of MH17 is the second devastating blow for Malaysia Airlines this year, following the mysterious disappearance of Flight MH370 in March, which vanished with 239 passengers and crew on board on its way from Kuala Lumpur to Beijing.
In Malaysia, there was a sense of disbelief that another airline disaster could strike so soon.
“This is a tragic day, in what has already been a tragic year, for Malaysia,” Prime Minister Najib Razak said.
International air lanes had been open in the area, though only above 32,000 feet. The Malaysia plane was flying 1,000 feet higher, at the instruction of Ukrainian air traffic control, although the airline had asked to fly at 35,000 feet.
Relatives gathered at the airport in Kuala Lumpur and the Netherlands declared a day of national mourning, without apportioning blame.
Ukraine accused pro-Moscow militants of firing a long-range, Soviet-era SA-11 ground-to-air missile. U.S. officials said that they saw this as possibly the most likely cause of the disaster.
Russian President Vladimir Putin blamed Kiev for renewing its offensive against rebels two weeks ago after a ceasefire failed to hold. The Kremlin leader called it a “tragedy” but did not say who he thought had brought the Boeing 777 down.
He also called for a “thorough and unbiased” investigation and for a ceasefire to allow for negotiations.
Ukrainian President Petro Poroshenko, who had stepped up an offensive in the east this month, spoke to Obama and sought to rally world opinion behind his cause.
“The external aggression against Ukraine is not just our problem but a threat to European and global security,” he said.
Russia, which Western powers accuse of trying to destabilise Ukraine to maintain influence over its old Soviet empire, has accused Kiev’s leaders of mounting a fascist coup. It says it is holding troops in readiness to protect Russian-speakers in the east - the same rationale it used for taking over Crimea. (Additional reporting by Natalya Zinets, Pavel Polityuk, Peter Graff and Elizabeth Piper in Kiev, Tim Heritage, Vladimir Soldatkin, Polina Devitt, Thomas Grove and Gabriela Baczynska in Moscow, Thomas Escritt in Amsterdam, Anuradha Raghu, Siva Govindasamy and Trinna Leong in Kuala Lumpur, Jane Wardell and Matt Siegel in Sydney and Phil Stewart, Warren Strobel, Jeff Mason, Steve Holland and Matt Spetalnick in Washington; Writing by Giles Elgood and Philippa Fletcher; Editing by Will Waterman and Alastair Macdonald)