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 The Moscow stock market fell by 10 percent and the central bank
spent $10 billion of its reserves to prop up the rouble as investors
took fright at escalating tensions with the West over the former
Soviet republic.
Ukraine said Russia was building up armoured vehicles on its side of
a narrow stretch of water closest to Crimea after Putin declared at
the weekend he had the right to invade his neighbor to protect
Russian interests and citizens.
On the ground in Perevalnoye, half way between the Crimean capital
of Simferopol and the Black Sea, hundreds of Russian troops in
trucks and armoured vehicles - without national insignia on their
uniforms - surrounded two military compounds, confining Ukrainian
soldiers as virtual prisoners.
Ukraine called up reservists on Sunday and the United States
threatened to isolate Russia economically after Putin's action
provoked what Britain's foreign minister called "the biggest crisis
in Europe in the twenty-first century".
European Union foreign ministers were to hold emergency talks on
Ukraine on Monday but diplomats said they would not immediately
match U.S. threats of sanctions against Moscow, but would focus on
diplomatic efforts to prevent escalation.
 The Organisation for Security and Cooperation in Europe (OSCE) said
it was trying to convene an international contact group to help
defuse the crisis after Germany said Chancellor Angela Merkel had
convinced Putin to accept such an initiative.
Switzerland, which chairs the pan-European security body, said the
contact group would support Ukraine during its transition and
coordinate aid and could also discuss sending observers to monitor
the rights of national minorities.
MARKETS TUMBLE, GAZPROM HIT
The Russian central bank raised its key lending rate by 1.5
percentage points after the rouble fell to all-time lows against the
dollar. The MICEX index of Moscow stocks tumbled 10 percent to 1,294
points. Russian gas monopoly Gazprom, which supplies Europe through
Ukraine, was down more than 13 percent.
Gazprom's finance chief warned Ukraine that it may hike gas prices
from next month, accusing Kiev of a patchy payments record, but said
gas transit to Europe was normal.
Ukraine's Prime Minister Arseny Yatseniuk, head of a pro-Western
government that took power when former president Viktor Yanukovich,
a Russian ally, fled on February 21 after three months of street
protests against his rule, said Putin had effectively declared war
on his country.
Western leaders have reacted with a barrage of warnings to Putin
against armed action, threatening economic and diplomatic
consequences if Moscow goes further, but are not considering any
military response.
A Ukrainian border guard spokesman said on Monday that Russian ships
had been moving in and around the Crimean port city of Sevastopol,
where the Russian Black Sea Fleet has a base, and that Russian
forces had blocked mobile telephone services in some parts of
Crimea.
He said Moscow was building up its armor near a ferry port on
Russia's side of the 4.5 km (three mile) wide Kerch straight, which
separates Crimea from Russia.
"There are armoured vehicles on the other side of the strait. We
can't predict whether or not they will put any vehicles on the
ferry," the spokesman said by telephone.
There was no immediate comment from the Russian Defence Ministry.
RUSSIAN FLAGS FLYING
Russian forces have already bloodlessly seized Crimea - an isolated
Black Sea peninsula with an ethnic Russian majority, where Moscow
has a naval base.
On Sunday they surrounded several small Ukrainian military outposts
there and demanded the Ukrainian troops disarm. Some refused,
leading to stand-offs, although no shots were fired.
All eyes are now on whether Russia makes a military move in
predominantly Russian-speaking eastern Ukraine, where pro-Moscow
demonstrators have marched and raised Russian flags over public
buildings in several cities in the last two days.
Russia has staged war games with 150,000 troops along the land
border, but so far they have not crossed. Kiev says Moscow is
orchestrating the protests to justify a wider invasion.
Ukraine's security council ordered the general staff to immediately
put all armed forces on highest alert. However, Kiev's small and
underequipped military is seen as no match for Russia's superpower
might.
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U.S. Secretary of State John Kerry condemned Russia for what he
called an "incredible act of aggression" and threatened "very
serious repercussions".
G8 countries and other nations were prepared to "to go to the hilt
to isolate Russia" if Moscow made the wrong choices in Ukraine,
Kerry told CBS program Face the Nation.
"They are prepared to isolate Russia economically. The rouble is
already going down. Russia has major economic challenges," he said.
He mentioned visa bans, asset freezes and trade isolation as
possible steps.
While the EU and NATO stepped up verbal pressure on Moscow, a German
spokesman said Merkel believed it was not too late to resolve the
Ukrainian crisis by political means despite differences of opinion
between Putin and the West.
The German leader, who speaks fluent Russian, has had several long
telephone calls with the German-speaking Putin since the crisis
erupted with mass protests in Kiev.
"There is no doubt President Putin has a completely different view
on the situation and events in Crimea from the German government and
our Western partners," spokesman Steffen Seibert told reporters. But
he added: "It is still not too late to resolve this crisis
peacefully by political means."
U.N. Secretary-General Ban Ki-moon said he would ask Russia's
foreign minister at a meeting in Geneva to refrain from acts or
rhetoric that would further escalate the crisis. He was sending his
deputy to convey the same message to the Ukrainian authorities in
Kiev, he said.
So far, the Western response has been largely symbolic. Obama and
others suspended preparations for a G8 summit in Sochi, where Putin
has just finished staging his $50 billion winter Olympic games. Some
countries recalled ambassadors. Britain said its ministers would
stay away from the Paralympics due next in Sochi.
With the confrontation in Crimea having remained bloodless for days,
a mood of imminent catastrophe has begun to ebb in Kiev, but many
people are still on edge.
On Kiev's Independence Square, known as the Maidan, where protesters
manned barricades for three months to bring down Yanukovich, the
morning crowds were smaller than in the past few days as people
returned to work.
"Crimea, we are with you!" read one placard. "Putin - Hitler of the
21st century," read another.
Sergei Lavreynenko, 44, a librarian from Kiev, said Ukrainians were
ready to take up arms to defend the country, and were frustrated at
mixed messages from the authorities.
"Of course we are all ready to go," he said next to a display of
homemade mortar tubes and molotov cocktails used in the uprising
against Yanukovich. "We have all served in the military. We have
military specialisms. If we can build our own mortar tube like that,
we can do even better.... But it needs to be organized. You can't
just get a bunch of guys, grab sticks and clubs and race off to
Crimea."
Britain's International Institute of Strategic Studies estimates
Kiev has fewer than 130,000 troops under arms, with planes barely
ready to fly and few spare parts for a single submarine.
Russia, by contrast, has spent billions under Putin to upgrade and
modernize the capabilities of forces that were dilapidated after the
breakup of the Soviet Union. Moscow's special units are now seen as
equals of the best in the world.
(Additional reporting by Peter Graff, Sabina Zawadzki, Pavel
Polityuk, Natalia Zinets, Timothy Heritage and Stephen Grey in Kiev,
Lina Kushch in Donetsk, Peter Apps in London, Steve Holland and Phil
Stewart in Washington and Lou Charbonneau at the United Nations;
writing by Paul Taylor; editing by Philippa Fletcher)
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