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Ukraine and Russia agree to strengthen ties at Moscow talks

Moscow set to buy £9 billion worth of Ukrainian government bonds

Russian President Vladimir Putin raised the stakes dramatically in the battle over Ukraine's future, declaring that Moscow will buy £9 billion worth of Ukrainian government bonds and sharply cut the price of natural gas to its neighbour.

The announcements followed his talks in Moscow with Ukrainian President Viktor Yanukovych, who is facing massive protests at home for his decision to delay signing an association agreement with the European Union.

Pro-western demonstrators in Kiev have protested in recent weeks, demanding that he sign up with the EU, in the belief that Brussels will make generous payments to assist Ukraine's economic modernisation.

However, Mr Yanukovych, who remains wedded to the EU option, failed to sign in the face of obdurate refusal to offer the sums of cash he believes essential to protect Ukraine in the face of an economic rupture with Moscow.

Mr Putin said that he and Mr Yanukovych hadn't discussed the prospect of Ukraine joining the Russian-led Customs Union.

He emphasised that Russia's decision to buy the Ukrainian bonds wasn't contingent on that government freezing any social payments to its citizens - a clear jab at the International Monetary Fund, which has pushed Ukraine to reduce spending as a condition for providing a bailout loan.

The Russian president also said that the state-controlled gas monopoly Gazprom would cut the price that Ukraine must pay for Russian gas deliveries to £165 per 1,000 cubic metres from the current level of about £245 per 1,000 cubic metres.

Mr Yanukovych explained his decision not to sign the agreement and free-trade pact with the EU last month by his belief that Ukraine needs to improve ties with Russia.

The two men set out a list of joint decisions, including a deal to settle disputes in mutual trade, an agreement to jointly modify a Soviet-designed transport plane, a deal on industrial co-operation and a pact to design a bridge across the Kerch Strait.

"The time has arrived to take energetic measures to not only return to the level of previous years, but to establish the conditions to move forward," Mr Putin said before the talks, lamenting a decline in bilateral trade relations.

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