* Russia confirms discussing loan with Ukraine
* Russian and Ukrainian leaders meet on Tuesday
* Deal also possible on cutting gas price for Ukraine
(Adds Bildt and Lavrov, debt rallies, Russian central bank)
By Timothy Heritage and Katya Golubkova
MOSCOW, Dec 16 Russia signalled on Monday it was
about to agree a loan deal with Ukraine to help its indebted
neighbour stave off economic chaos and keep it in its former
Soviet master's orbit.
In snowbound Kiev, the opposition went ahead with plans for
another big rally for Tuesday against what they see as moves by
President Viktor Yanukovich to sell out national interests to
Russia after he backed away from a landmark deal with the
European Union that would have shifted their country westwards.
An aide to Russian President Vladimir Putin suggested a
credit would be agreed at talks with Yanukovich in Moscow on
Tuesday, and Ukraine's energy minister said a deal was also very
probable on lower prices for Russian gas.
Yanukovich has turned to Moscow for money after spurning the
chance of joining a free trade pact with the EU, despite the
risk of protests against him swelling. He also visited China
this month as he sought the best deal for his country.
"The situation in Ukraine is now such that without loans,
from one side or another, they will simply fail to maintain
economic stability," Andrei Belousov, an economic adviser to
Putin, told Interfax news agency. "I do not rule out that, if
there is a request, a credit could be provided (to Ukraine)."
Russia's Finance Ministry confirmed talks on a loan were
under way. Ukraine's dollar bond prices rallied and debt
insurance costs fell on the growing expectations Moscow could
reach agreements with Kiev.
"I consider it a positive. A Russia deal is better for
Ukraine in the short term as it is more likely Ukraine will get
more financial support more quickly," said Charles Robertson,
emerging markets economist at Renaissance Capital.
Investors have fretted that without international support,
Ukraine will struggle to repay debt that falls due next year.
Agreement on Tuesday would also be seen in Moscow as a
triumph for Putin keeping Ukraine in Russia's political and
economic orbit more than two decades after the Soviet Union
collapsed, and preventing a historic Westward shift by Kiev.
EU, RUSSIA TRADE BARBS
Underlying the East-West tug-of-war that has emerged over
Ukraine, Sweden's foreign minister Carl Bildt accused Moscow on
Monday of trying to woo Kiev with propaganda and "sometimes
His Russian counterpart Sergei Lavrov, meeting EU foreign
ministers in Brussels, took a veiled swipe at the bloc by
criticising "external intervention" as Ukraine considers its
Divisions have emerged in Brussels over how to handle the
issue. The EU's enlargement chief said on Sunday the 28-nation
bloc was halting work on a trade and political pact with
Ukraine, suggesting the EU has lost patience with Kiev's demands
for financial aid, but other EU ministers later said the door
Ukraine is seeking help to cover an external funding gap of
$17 billion next year - almost the level of the central bank's
depleted currency reserves.
Belousov did not say how much Russia, whose own economy is
stuttering badly, would be ready to offer Ukraine. But sources
in Ukraine said the deal could be worth $15 billion, with
Russian providing about $3-5 billion up front.
The most Brussels has so far offered Ukraine is 610 million
euros ($837.56 million) but EU officials are in discussion with
the International Monetary Fund, the World Bank and other
financial institutions on ways to help Ukraine.
Apart from loans, Ukraine is seeking a lower price for
Russian gas - now at around $400 per 1,000 cubic metres - to
help it cope with its debt burden.
Ukrainian Prime Minister Mykola Azarov says he hopes a deal
on a cheaper price for gas deliveries will soon be concluded. A
reduction of at least 10-15 percent is likely, sources in Kiev
Russia's central bank dismissed concerns about Russian
banks' exposure to Ukraine as "quite insignificant", amounting
to less than 1 percent of their assets.
Tuesday's talks are intended to conclude a "substantial
package" of agreements to chart out a road map to removing trade
barriers for Ukraine with Russia, both sides say.
Yanukovich is seeking the best deal possible for Ukraine but
playing East against West is a hazardous manoeuvre running the
risk of alienating both parties and there is no certainty
Ukraine can avoid default or a currency crisis.
Putin regards Ukraine as vital to creating a political and
economic union stretching from the Pacific to the EU's eastern
borders. But Yanukovich is not expected to sign Ukraine up for a
Russia-led customs union which Putin sees as the basis for this.
Holding out on membership of the customs union could be
Yanukovich's last bargaining chip as he tries to survive the
protests in Kiev and win a presidential election in 2015.
In Kiev, the main protest camp had thinned out again on
Monday after about 200,000 people protested on Sunday. A few
thousand people were listening to prayers, speeches and songs
but these numbers are likely to swell again on Tuesday.
($1 = 0.7283 euros)
(Additional reporting by Richard Balmforth and Gabriela
Baczynska in Kiev, and by Andrius Sytas in Vilnius, Writing by
Timothy Heritage; editing by Ralph Boulton)