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UPDATE 1-Russia may lend Ukraine $2bln before election-paper

* Gov’t source says Russia ready to give Ukraine $2 bln

* Government, Fin Min deny loan is under review

(Adds Kudrin comments, background)

MOSCOW, Sept 8 (Reuters) - Russia could lend Ukraine $2 billion to support the former Soviet republic’s economy ahead of next year’s election, the Vedomosti business daily reported on Tuesday citing an unidentified Russian government official.

When asked about the report, Prime Minister Vladimir Putin’s spokesman, Dmitry Peskov, said by telephone he was unaware of any talks about a possible loan.

The newspaper said gas supplies and the possibility of lending money to Ukraine would be discussed at an October meeting between Putin and his Ukrainian counterpart Yulia Tymoshenko.

Gas wars between Russia and Ukraine, fuelled by disagreements over price and payments, have stopped supplies to Europe during cold winter months in recent years. Relations between the two are further strained by the presence of Russia’s Black Sea Fleet in Ukraine and Kiev’s desire to join NATO.

However recent weeks have brought some signs of rapprochement, with Putin agreeing to let Kiev import much less gas than previously arranged, saving Ukraine’s economy from potentially huge fines. [ID:nL1716728]

Ukraine had not yet officially asked for a loan but Russian officials would be ready to look at the possibility of extending credit to Kiev, Vedomosti reported.

“We do not need the collapse of Ukraine,” the newspaper cited the unidentified Russian government official as saying. “That would be oil on the fire of the election campaign.”

Russia's Gazprom GAZP.MM, the world's biggest natural gas company, supplies a quarter of the European Union's gas and most of this goes through pipelines across Ukraine.

GAS SUPPLIES

Moscow has warned Europe could face new supply disruptions if Ukraine fails to find the money to pump Russian gas into storage to ensure smooth winter supplies, and Ukraine has previously said it needs at least $4 billion for this.

But Tymoshenko said on Monday enough fuel has already been stowed away. [ID:nL7629124]

Russia’s Finance Minister Alexei Kudrin said Russia is not currently looking into the possibility of issuing a loan to Ukraine, presuming Kiev will receive the money it needs from the International Monetary Fund.

“The possibility of giving a loan to Ukraine is not completely off but at the moment we are not considering such an option. We are not yet ready to give a loan to Ukraine,” he told reporters. “We are in contact, we are discussing gas payments.”

Diplomats say they are closely watching the relationship between former Putin and Tymoshenko, the most popular Ukrainian politician now holding office, ahead of Ukraine’s Jan. 17 presidential election.

Moscow is eager to extend Russian business interests in Ukraine. (Reporting by Guy Faulconbridge and Gleb Bryanski, editing by Ralph Boulton)

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