Vladimir Putin cools Ukraine tensions as U.S. talks sanctions

Stepping back from the brink of war, Vladimir Putin talked tough but cooled tensions in the Ukraine crisis Tuesday, saying Russia has no intention "to fight the Ukrainian people" but reserved the right to use force.

As the Russian president held court in his personal residence, U.S. Secretary of State John Kerry met with Kiev's fledgling government and urged Putin to stand down.

"It is not appropriate to invade a country, and at the end of a barrel of a gun dictate what you are trying to achieve," Kerry said. "That is not 21st-century, G-8, major nation behaviour."

Although nerves remained on edge in Crimea, with Russian troops firing warning shots to ward off Ukrainian soldiers, global markets catapulted higher on tentative signals that the Kremlin was not seeking to escalate the conflict. Kerry brought moral support and a $1 billion aid package to a Ukraine fighting to fend off bankruptcy.

Lounging in an arm-chair before Russian tricolour flags, Putin delivered a characteristic performance filled with earthy language, macho swagger and sarcastic jibes, accusing the West of promoting an "unconstitutional coup" in Ukraine. At one point he compared the U.S. role in Ukraine to an experiment with "lab rats."

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But the overall message appeared to be one of de-escalation: "It seems to me [Ukraine] is gradually stabilizing," Putin said. "We have no enemies in Ukraine. Ukraine is a friendly state." He tempered those comments by warning that Russia was willing to use "all means at our disposal" to protect ethnic Russians in the country.

Significantly, Russia agreed to a NATO request to hold a special meeting to discuss Ukraine on Wednesday in Brussels, opening up a possible diplomatic channel in a conflict that still holds monumental hazards and uncertainties.

While the threat of military confrontation retreated somewhat Tuesday, both sides ramped up economic feuding in their struggle over Ukraine: Russia hit its nearly broke neighbour with a termination of discounts on natural gas, while the U.S. announced a $1-billion aid package in energy subsidies to Ukraine.

"We are going to do our best [to help you]. We are going to try very hard," Kerry said upon arriving in Kiev. "We hope Russia will respect the election that you are going to have."

World markets claw back

The penalties proposed against Russia, he added, are "not something we are seeking to do. It is something Russia is pushing us to do."

Ukraine's finance minister, who has said Ukraine needs $35 billion to get through this year and next, was meeting Tuesday with officials from the International Monetary Fund.

World stock markets, which panicked the previous day, clawed back a large chunk of their losses Tuesday on signs that Russia was backpedalling. Gold, the Japanese yen and U.S. treasuries all seen as safe havens returned some of their gains. Russia's RTS index, which slumped 12 per cent on Monday rose 6.2 per cent Tuesday. In the U.S., the Dow Jones industrial average was up 1.4 per cent.

"Confidence in equity markets has been restored as the standoff between Ukraine and Russia is no longer on red alert," said David Madden, market analyst at IG.

Russia took over the strategic peninsula of Crimea on Saturday, placing its troops around the peninsula's ferry, military bases and border posts. Two Ukrainian warships remained anchored in the Crimean port of Sevastopol, blocked from leaving by Russian ships.

"Those unknown people without insignia who have seized administrative buildings and airports what we are seeing is a kind of velvet invasion," said Russian military analyst Alexander Golts.

The territory's enduring volatility was put in stark relief Tuesday morning: Russian troops, who had taken control of the Belbek air base, fired warning shots into the air as around 300 Ukrainian soldiers, who previously manned the airfield, demanded their jobs back.

We hope Russia will respect the election that you are going to have- U.S. Secretary of State John Kerry

About a dozen soldiers at the base warned the Ukrainians, who were marching unarmed, not to approach. They fired several warning shots into the air and said they would shoot the Ukrainians if they continued to march toward them.

The Ukrainian troops vowed to hold whatever ground they had left on the Belbek base.

"We are worried. But we will not give up our base," said Capt. Nikolai Syomko, an air force radio electrician holding an AK47 and patrolling the back of the compound. He said the soldiers felt they were being held hostage, caught between Russia and Ukraine.

Tacit hope expressed by new Ukrainian PM

There were no other reports of significant armed confrontations Tuesday in Ukraine.

The new Ukrainian leadership in Kiev, which Putin does not recognize, has accused Moscow of a military invasion in Crimea, which the Russian leader denies.

Ukraine's prime minister expressed hope Tuesday that a negotiated solution could be found. Arseniy Yatsenyuk told a news conference that both governments were talking again, albeit slowly.

"We hope that Russia will understand its responsibility in destabilizing the security situation in Europe, that Russia will realize that Ukraine is an independent state and that Russian troops will leave the territory of Ukraine," he said.

In his hour-long meeting with reporters Tuesday, Putin said Russia had no intention of annexing Crimea, while insisting its residents have the right to determine the region's status in a referendum later this month. Crimean tensions, Putin said, "have been settled."

He said massive military manoeuvres Russia had been doing involving 150,000 troops near Ukraine's border had been previously planned and were unrelated to the current situation in Ukraine. Russia announced that Putin had ordered the troops back to their bases.

Putin maintains West to blame for turmoil

Putin hammered away at his message that the West was to blame for Ukraine's turmoil, saying its actions were driving Ukraine into anarchy. He warned that any sanctions the United States and EU place on Russia for its actions will backfire.

Russia's Foreign Ministry derided American threats of punitive measures as a "failure to enforce its will and its vision of the 'right' and 'wrong' side of history" a swipe at U.S. President Barack Obama's statement Monday that Russia was "on the wrong side of history."

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The EU was to hold an emergency summit Thursday on whether to impose sanctions.

Moscow has insisted that the Russian military deployment in Crimea has remained within the limits set by a bilateral agreement on a Russian military base there. At the United Nations in New York, Russia's ambassador to the UN, Vitaly Churkin, said Russia was entitled to deploy up to 25,000 troops in Crimea under that agreement.

The Russian president also asserted that Ukraine's 22,000-strong force in Crimea had dissolved and its arsenals had fallen under the control of the local government. He didn't explain if that meant the Ukrainian soldiers had just left their posts or if they had switched allegiances from Kiev to the local pro-Russian government.

Why are you splitting the country?- Russian President Vladimir Putin

Putin accused the West of using fugitive President Viktor Yanukovych's decision in November to ditch a pact with the EU in favour of closer ties with Russia to fan the protests that drove him from power and plunged Ukraine into turmoil.

"I have told them a thousand times, 'Why are you splitting the country?"' he said.

While he said he still considers Yanukovych to be Ukraine's legitimate president, he acknowledged that the fallen leader has no political future and said Russia gave him shelter only to save his life. Ukraine's new government wants to put Yanukovych on trial for the deaths of over 80 people during protests last month in Kiev.

Putin had withering words for Yanukovych, with whom he has never been close.

Asked if he harbours any sympathy for the fugitive president, Putin replied that he has "quite opposite feelings."