Ukraine Ceasefire Largely Holds

By Aleksandar Vasovic and Gabriela Baczynska

MARIUPOL/DONETSK, Ukraine, Sept 8 (Reuters) - A ceasefire struck between Ukrainian forces and pro-Russian separatists was largely holding on Monday in eastern Ukraine despite sporadic violations, but Europe's security watchdog said the sides must push for a political settlement.

The ceasefire, which took effect on Friday evening, is part of a peace plan intended to end a five-month conflict the United Nations' human rights envoy said had killed more than 3,000 people. It has also caused the sharpest confrontation between Russia and the West since the Cold War.

Ukrainian President Petro Poroshenko was due to visit on Monday the port of Mariupol, scene of fierce fighting before the ceasefire. The city, on the Sea of Azov, also saw the worst violation of the truce to date on Saturday night when government forces said they came under artillery attack by the rebels.

A woman was killed and four people injured in that shelling.

"Overall, the ceasefire held even though it is still shaky," said Ambassador Thomas Greminger of Switzerland, the current chair of the Organization for Security and Cooperation in Europe (OSCE), adding the next days would be crucial.

Swiss President Didier Burkhalter said he was "not optimistic" about the ceasefire holding and said it was in any case not sufficient, adding: "The different actors must really push for a (political) breakthrough".

The two sides remain far apart on the future of eastern Ukraine, home to much of the country's heavy industry. At the weekend the rebels repeated they wanted independence for the region or union with Russia and would not accept rule by Kiev.

Both the rebels and the Ukrainian military insist they are strictly observing the ceasefire and blame their opponents for any violations.

"Ukrainian forces are observing the ceasefire regime but when they face a direct threat to their lives they fire back. But they are staying in the positions where they were at the moment the ceasefire was signed," military spokesman Andriy Lysneko told a news briefing in Kiev.

The Ukrainian military's press center listed five rebel violations of the ceasefire accord overnight into Monday, while the separatists accused government forces of preparing to storm a town near rebel-held Donetsk, the region's industrial hub.

A Reuters reporter heard renewed mortar fire in the vicinity of the airport north of Donetsk on Monday afternoon.

SANCTIONS

Kiev and its Western backers accuse Russia of sending troops across the border and arming the rebels, charges Moscow denies.

Lysenko said on Monday Ukraine had seen no sign of Russian troop movements over the border in the past 24 hours.

Russian Prime Minister Dmitry Medvedev said Moscow would respond to any new Western economic sanctions imposed over its role in Ukraine, adding it might target flights over Russia.

The European Union put Russia's top oil producers and pipeline operators Rosneft, Transneft and Gazprom Neft on its list of Russian state-owned firms that will not be allowed to raise capital or borrow on European markets, an EU diplomat said. EU sanctions, however, did not encompass the gas sector and in particular state-owned Gazprom, the world's biggest gas producer which is also the biggest gas supplier to Europe.

In general, the EU sanctions on raising money in the European Union for Russian companies will apply to firms that have turnover of more than 1 trillion roubles($26.95 billion) and half of that is generated from the sale or transport of oil, the diplomat said. The sanctions will be agreed unless by 1300 GMT one of the EU governments objects to the deal that was reached by ambassadors of the 28 EU countires on Friday night. They will enter into force after being published in the official journal of the European Union, which could happen at midnight.

The handover of prisoners-of-war is part of the peace plan agreed last Friday. A rebel leader, Andrei Purgin, told Russia's Interfax news agency he expected a full exchange on Wednesday.

In rebel-held Donetsk, the largest city of eastern Ukraine with a pre-war population of about one million, authorities of the self-proclaimed "Donetsk people's republic" declared Monday a public holiday to mark the expulsion of "fascists" from the heavily industrialized, mainly Russian-speaking Donbass region.

The separatists have used the word "fascist" to denote the central government in Kiev since Poroshenko's predecessor Viktor Yanukovich, who came from eastern Ukraine and was backed by Mosocw, fled to Russia in February after months of anti-government protests in the Ukrainian capital.

Most residents of Donetsk blame Kiev for the conflict, after months of heavy bombardment of the city by government forces, but some had harsh words also for the separatists and few expected the current ceasefire to last.

"The ceasefire is not holding, that's clear from just the few days I have been back in the city," said Yevgenia, who has taken refuge with relatives in western Ukraine.

"We came back for warm clothes and are leaving right away. It's so sad to see the city empty, deserted, armed people with cars crossing at red traffic lights, kidnapping people or taking away their cars. What good can they build here?" (Additional reporting by Pavel Polityuk in Kiev, Timothy Heritage in Moscow and Stephanie Nebehay in Geneva; Writing by Gareth Jones; Editing by Ralph Boulton)