KIEV (AFP) - Ukraine embarked on delicate diplomatic negotiations with Russia on Monday aimed at averting a debilitating gas cut and ending a bloody separatist insurgency by the end of the week.
The meetings in Brussels and Kiev are the first challenges for new Ukrainian President Petro Poroshenko, who has vowed dialogue with Moscow to try to prevent the bitterly divided former Soviet state from splitting.
Washington expressed hope "significant progress" could be achieved after a flurry of diplomacy, including a meeting between Poroshenko and Russian President Vladimir Putin last week.
The 48-year-old confectionery tycoon promised late Sunday to end fighting "this week" in Ukraine's economically vital eastern rustbelt that has claimed more than 200 lives.
And he affirmed after being sworn in as Ukraine's fifth president on Saturday that Kiev would sign a historic pact with the European Union that would finally wrest it out of Russia's orbit.
But on the ground, the eight-week insurgency that Kiev and the West accuse Russia of orchestrating raged on unabated.
Ukrainian sources said that militants had staged a wave of failed attacks on the airport in the Russian border city of Lugansk.
Intense artillery fire and air bombardments also continued in the rebel Donetsk region stronghold of Slavyansk - an industrial city of 120,000 where many have been sheltering in basements for weeks.
The Ukrainian army also said pro-Russian gunmen had taken several of its soldiers prisoner.
"Some were out in the field, but others were abducted," military spokesman Vladyslav Seleznyov wrote in a Facebook post.
- Gas deal 'highly likely'-
EU-mediated gas talks under way in Brussels come on the eve of a Russian deadline for Ukraine to cover a debt of nearly US$4.4 billion (S$5.5 billion) or have its shipments end on Wednesday.
About 15 percent of Europe's gas from Russia transits through Ukraine - a dependence that EU nations have been trying to limit.
Analysts said the fuel freeze would also deal a bruising blow to a Ukrainian economy that the IMF already expects to contract by five percent this year.
Ukraine has refused to pay the bills in protest at Russia's decision to nearly double rates in the wake of the February ouster of Kiev's Kremlin-backed president.
Sources said the pressure on all sides to agree greatly boosted the chances of a compromise.
"There is a high likelihood that this really will be the final meeting at which we expect to agree on a schedule of payments for the already delivered gas," a Russian source close to the negotiations told Moscow's Vedomosti business daily.
An unnamed Ukrainian official said he expected Kiev's Naftogaz to make an immediate payment of US$1.0 billion for gas it received in the last two months of last year.
"Another US$451 million may be paid in the near future," the Ukrainian source said.
"And for April and May, we expect an initial payment of US$500 million." Moscow's VTB Capital investment bank said the price for future deliveries would probably hover around US$360 per thousand cubic metres of gas - a sum about halfway between Russia's old price and the one set after the conflict erupted.
But as officials negotiated gas prices, tensions between Moscow and the West showed little sign of abating, with Russia labelling Nato military manoeuvres in the Baltic states an "act of aggression".
Moscow also accused the European Union of putting pressure on Bulgaria to suspend work on a key gas pipeline.
The South Stream project is one of Russia's most valued projects, intended to allow gas deliveries to bypass Ukraine as a transit country to Europe.
"Sometimes Brussels is guided by a desire to punish, a desire to take revenge," Foreign Minister Sergei Lavrov said, though the EU says the suspension is purely for procedural concerns.
- 'End fighting this week' -
Upon taking the oath of office, Poroshenko conceded that the eastern uprising could not be resolved without the direct involvement of Russia.
On Sunday, the two sides conducted the first of what the Ukrainian leader said should be daily negotiations involving a representative from the Organisation for Security and Cooperation in Europe - a Vienna-based body that was first tasked with securing peace during the Cold War.
Ukraine's acting Defence Minister Mykhailo Koval said that Poroshenko's peace push "instills great hope." But the president's pledge was dismissed as political grandstanding by separatists who have taken effective control of a dozen towns and cities and are now seeking to join Russia.
"We are continuing to mobilise," the region's self-proclaimed deputy premier Andriy Purgin told Russia's Interfax news agency.
And Poroshenko himself did not spell out how he intended to make gunmen comply with the ceasefire or whether he would order a full military withdrawal.
Nato on Monday launched one of its largest military manoeuvres in the Baltic states since the crisis began.
Around 4,700 troops and 800 military vehicles are participating in the Sabre Strike exercises near the Latvian capital Riga.