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 President Petro Poroshenko said before flying to the town of
Debaltseve that more than 80 percent of his troops in the rail hub
had already left following a heavy bombardment and street-by-street
fighting despite the truce that took effect on Sunday.
Rebels say the ceasefire, negotiated by Ukraine, Russia, Germany and
France at a summit in Belarus last week, does not apply to
Debaltseve, which links the two rebel-controlled regions of eastern
Ukraine, Donetsk and Luhansk.
Poroshenko and the West say the rebel assault is being reinforced by
Russian tanks, artillery and soldiers, though Moscow denies sending
forces to join the battle for a region that President Vladimir Putin
has called "New Russia".
"The actions by the Russia-backed separatists in Debaltseve are a
clear violation of the ceasefire," European Union foreign policy
chief Federica Mogherini said in Brussels, stepping up Western
criticism of the rebel offensive on Debaltseve.
"The EU stands ready to take appropriate action in case the fighting
and other negative developments in violation of the Minsk agreements
continue," she said, making an apparent threat of further economic
sanctions on Moscow.
 A German government spokesman said the Minsk agreement had been
damaged though it made sense to try to implement it.
Putin showed no sign of backing down over Ukraine on Tuesday
evening, when he urged Kiev's pro-Western leaders to let their
soldiers surrender to avoid more bloodshed.
Hours later, the Ukrainian troop withdrawal was under way. A Reuters
witness saw weary Ukrainian troops, their faces blackened, some in
columns, some in cars, arriving in Artemivsk, about 30 km (20 miles)
north of Debaltseve.
Pro-Kiev commanders said some forces had pulled out but there were
reports of continued fighting in the town. A Reuters correspondent
near Debaltseve saw black smoke rising over the town and heard loud
blasts hours after the withdrawal began.
"The withdrawal of forces from Debaltseve is taking place in a
planned and organized way," said Semen Semenchenko, who heads the
Donbass paramilitary battalion.
"The enemy is trying to cut the roads and prevent the exit of the
troops," he said on Facebook.
News of the withdrawal immediately affected financial markets, with
the cost of insuring exposure to Ukrainian debt and the spreads of
the country's dollar bonds over safe haven U.S. treasury bills
soaring to record highs.
The rouble was largely steady against the dollar.
WITHDRAWAL OF HEAVY WEAPONS
Even before the Ukrainian troops were forced to pull back, last
week's peace deal had all but collapsed, with both sides failing to
withdraw heavy guns as required after the rebels refused to halt
their advance.
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Interfax news agency cited the self-proclaimed Donetsk People's
Republic as saying that separatists had begun pulling back artillery
from rebel-held areas of east Ukraine where fighting had ceased.
Rebels stepped up their offensive on Debaltseve almost immediately
after the deal to end the conflict in eastern Ukraine, which has
killed more than 5,000 people, was signed on Thursday.
The deal gave both sides until Sunday to lay down their arms,
prompting some analysts to suggest the rebels felt they could take
the town within that timeframe.
Despite Putin's public call for a surrender, Russia sponsored a
resolution adopted by the U.N. Security Council that called on all
sides to implement the truce agreement, expressing "grave concern"
at the violence.
Russia has already annexed Ukraine's Crimea Peninsula, and Western
countries believe Putin's goal is to establish a "frozen conflict"
in eastern Ukraine, gaining permanent leverage over a country of 45
million people seeking integration with Europe.
Washington said it was "gravely concerned" by the fighting and was
monitoring reports of a new column of Russian military equipment
heading to the area.
The United States has been considering sending weapons to aid Kiev,
although the State Department said on Tuesday getting into a proxy
war with Russia was not in the interests of Ukraine or the world.
Putin said he believed foreign weapons were already being supplied
to Kiev.
(Additional reporting by Pavel Polityuk, Natalia Zinets, Alessandra
Prentice and Richard Balmforth in Kiev, Polina Devitt in Moscow;
writing by Elizabeth Piper and Timothy Heritage; editing by Giles
Elgood)
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