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 The report of the attack on the armored column on Friday triggered
a sell-off in the U.S. dollar and European stocks, with markets
fearful it could change the Ukraine conflict into an open
confrontation between Moscow and Western-backed Kiev.
But Moscow made no threat of retaliation, instead saying it was a
"fantasy" that its armored vehicles entered Ukraine, while in
Washington the White House said it could not confirm that Russian
vehicles had been attacked on Ukrainian soil.
On the ground, the conflict in eastern Ukraine returned on Saturday
to the pattern it has been following for several weeks. Kiev said
military equipment was entering from Russia, and the rebels said
they had attacked Ukrainian troops.
A Reuters reporter in Donetsk, one of two rebel strongholds in the
east, said the sound of explosions was audible in the city center.
The Finnish President, Sauli Niinisto, was to arrive in Kiev later
on Saturday for talks with Ukraine's President Petro Poroshenko
aimed at finding a negotiated solution.
Niinisto had met Putin in southern Russia on Friday and afterwards
spoke of the possibility of a truce, although it was not immediately
clear how that would happen.
COUNTER-CLAIMS
The conflict in Ukraine has dragged relations between Russia and the
West to their worst since the Cold War and set off a round of trade
restrictions that are hurting struggling economies both in Russia
and Europe.
The United Nations said this week that an estimated 2,086 people had
died in the Ukraine conflict, with nearly 5,000 wounded.
A rebel Internet news outlet said on Saturday that separatist
fighters had killed 30 members of a Ukrainian government battalion
in fighting in Luhansk province, a rebel-held area of eastern
Ukraine adjacent to the Russian border.
Rebels said two villages south of Donetsk, the other separatist
stronghold, were bombed overnight with mortars. Rebel news outlet
Novorossiya also said two neighborhoods of the city itself had been
hit with artillery.
A Ukrainian defense ministry spokesman, Andriy Lysenko, contradicted
the rebel assertions. He said three Ukrainian servicemen had been
killed over the past 24 hours, and denied Kiev's forces were firing
artillery on Donetsk.
In the past few hours Ukrainian security forces had spotted Russian
drones and a helicopter crossing illegally into Ukraine's airspace,
Lysenko told a news briefing.
He declined to give further details on the incident on Friday in
which Kiev said it attacked armored vehicles that arrived from
Russia. Ukraine has not made clear if the vehicles were manned by
Russian soldiers or separatist irregulars.
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MOMENTUM
Ukraine and its Western allies say Russia broke international law by
annexing Ukraine's Crimea region earlier this year, and that Moscow
is now arming the Ukrainian separatists. Russia accuses Kiev of
waging a criminal war against Russian-speaking civilians in the
east. Both sides reject the allegations.
The momentum in the conflict on the ground is with the Ukrainian
forces.
They have pushed the separatists out of large swathes of territory
and have now nearly encircled them in Donetsk and Luhansk. Kiev says
it now controls the road linking the two cities.
Russia says the Ukrainian offensive is causing a humanitarian
catastrophe for the civilian population in the two cities. It
accuses Kiev's forces of indiscriminately using heavy weapons in
residential areas, an allegation Ukraine denies.
In the past seven days, three of the most senior rebel leaders have
been removed from their posts, pointing to mounting disagreement
over how to turn the tide of the fighting back in their favor.
Lysenko, the Ukrainian military spokesman, said he had reports of
rebel fighters abandoning their posts in Luhansk, and preparing to
leave Donetsk and seek safe haven in Russia.
"A mood of panic is spreading and rebels are trying to leave through
the small gaps that remain," he said.
The Reuters reporter in Donetsk said that on Friday evening the
separatist administration was still operating and there had been no
sign of preparations for a pull-out.
Alexander Zakharchenko, prime minister of the self-proclaimed
Donetsk People's Republic, said reinforcements were on their way.
In a video posted on another rebel Internet site, he said these
included 150 armored vehicles and 1,200 fighters who, he said, had
spent four months undergoing training in Russia.
(Additional reporting by Natalia Zinets and Alessandra Prentice in
Kiev and Jason Bush in Moscow; writing by Christian Lowe; editing by
Tom Pfeiffer)
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