By Polina Devitt and Dmitry Zhdannikov
MOSCOW, Aug 6 (Reuters) - Russia will ban all imports of U.S. food products as well as fruit and vegetables from the European Union after President Vladimir Putin ordered retaliation for Western sanctions against Moscow, a state news agency reported on Wednesday.
With Russia a major buyer of food from the United States and Europe, the ban marks a deep escalation of an economic tit-for-tat set off by the crisis in Ukraine, which has brought East-West relations to their lowest since the Cold War.
Putin signed a decree on Wednesday halting or limiting imports of agricultural products from countries which have imposed sanctions on Russia, ordering his government to come up with a list of imports to be banned for a year.
"(All food products) that are being produced in the U.S. and being supplied to Russia will be banned," Ria Novosti quoted Alexei Alekseenko, spokesman for the VPSS food standards agency, as saying. "Fruit and vegetables from EU will be covered by the total ban," he added.
No one was available for comment at the VPSS (Phytosanitary Surveillance Service) but earlier Alekseenko told Reuters that retaliatory action would be "quite substantial", and include U.S. poultry.
A spokesman for the European Commission in Brussels said he had no immediate comment.
Russians are by far the biggest buyers of EU fruit and vegetables, having bought 21.5 percent of EU vegetable exports and 28 percent of the bloc's fruit exports in 2011.
They also have a strong appetite for U.S. chicken, buying 276,100 tonnes of it last year, or 8 percent of U.S. exports. This made it the second largest buyer behind Mexico, according to the U.S. Department of Agriculture.
After Putin issued his decree, the VPSS said it would discuss an option to increase food imports from Ecuador, Brazil, Chile and Argentina with the countries' ambassadors on Thursday.
Brazilian producers could send an additional 150,000 tonnes of chicken per year to Russia to make up the shortfall, Francisco Turra, President of the country's animal protein association ABPA, said in Sao Paulo.
Washington and the EU first imposed sanctions after Russia annexed Crimea from Ukraine in March and tightened them after a Malaysian airliner was shot down last month over territory in eastern Ukraine held by pro-Moscow rebels. Moscow rejects Western allegations that the rebels used a missile it supplied to bring down the airliner, killing all 298 people on board.
East-West relations soured yet further on Wednesday as NATO said Russia might use the pretext of a humanitarian mission to invade eastern Ukraine.
The prospect of tit-for-tat economic restrictions has raised concern among smaller EU nations that have close trading ties to Russia. Finland, which shares a long border with Russia, said it feared a repeat of the turmoil suffered by most Western economies in 2008-09.
"This has the potential - and I stress potential - to become Economic Crisis 2.0," Prime Minister Alexander Stubb told reporters in the Finnish city of Espoo.
Neutral Finland traded heavily with its huge neighbor even during the Cold War, and suffered badly when the Soviet Union collapsed almost a quarter of a century ago. Today, Russia is Finland's third largest export market, while Russian tourists spend roughly 2 billion euros ($2.7 billion) a year in Finland.
Stubb said he expected Moscow to retaliate but defended the sanctions, imposed after Russia annexed Crimea from Ukraine in March and tightened after a Malaysian airliner was shot down over territory in eastern Ukraine held by pro-Moscow rebels.
However, he made clear the burden of retaliation had to be shared among EU members: "If sanctions hit Finland disproportionately, we will seek aid from our EU partners."
SET UP WELL
Until now, smaller or poorer countries have featured prominently among those targeted by the Russian response. Moscow has already suspended beef and cattle imports from Romania, citing an outbreak of mad cow disease, as well as banning Ukrainian juice and dairy produce, Polish vegetables and Australian beef.
The central bank warned that such bans on importing cheap products could make it harder to control inflation, which fell to an annual 7.5 percent in July, but remains well above the 6.5 percent increase seen in 2013.
The sanctions have effectively frozen Russian banks out of EU financial markets, and yet one Western bank active in Russia said it expected to keep making solid profits there despite losing some business.
Bank Austria, the central and eastern European arm of Italian bank UniCredit, said its pretax profit in Russia rose 3 percent to 247 million euros in the first half of this year.
That was more than a quarter of its total pretax profit, making Russia its most profitable market.
Bank Austria said it would be able to keep raising money locally.
"Given what we know now about sanctions, we assume that in Russia we will continue to have a very significant profit contributor. We feel we are set up well," Chief Executive Willibald Cernko said.
Federico Ghizzoni, UniCredit's chief executive, also expressed confidence. "The bank seems strong enough to go through this storm," he said in Milan. "This is not to say that we are not looking at the situation with concern, but there is no systemic problem," he said, adding the bank estimated a hit of up to 10-15 million euros in lost revenues.
In a sign of the economic slowdown, soft drinks giant Coca-Cola Co said it had taken advertisements off four television channels in Russia as a fall in second-quarter sales prompted a rethink of its marketing plans.
The Russian business daily Kommersant said two of the channels where Coke's advertising would be cut were owned by St Petersburg-based Bank Rossiya, which is owned in turn by Yuri Kovalchuk, a close ally of Putin.
Kovalchuk was hit by U.S. sanctions in March and blacklisted by the EU last month. However, a Coca-Cola spokeswoman said by email that "there is no political motive in this decision". (1 US dollar = 0.7487 euro) (writing by David Stamp; additional reporting by Michael Shields, Fabiola Gomes; Angelika Gruber, Polina Devitt, Maria Kiselyova, Silvia Aloisi and Gianluca Semeraro; Editing by Kevin Liffey)