Kerry to Ukraine as US toughens stance against Russia

US Secretary of State John Kerry flew to Kiev on Tuesday to give support to its leaders as Washington suspended military cooperation with Russia amid a Cold War-style struggle between Moscow and the West.

Russia meanwhile ordered 150,000 troops who had been holding snap military drills near the Ukrainian border back to their barracks in a move that brought relief to the markets and settled the price of oil.

Its forces remain in de facto control of Crimea -- a strategic Black Sea peninsula that has housed the Russian Black Sea Fleet since the 18th century -- but there were no signs of them conducting a military offensive overnight.

Ukrainian defence said on Monday that Russia had issued its soldiers in Crimea a dawn ultimatum to surrender or face an all-out assault. Russia had denounced the claim as "complete nonsense".

Kerry, the highest profile foreign visitor to Kiev since the February 22 downfall of Kremlin-backed president Viktor Yanukovych, was to meet members of the new government as the West grapples with the biggest test for global diplomacy since the 1989 fall of the Berlin Wall.

He will "reaffirm the United States' strong support for Ukrainian sovereignty, independence, territorial integrity, and the right of the Ukrainian people to determine their own future, without outside interference or provocation," the State Department said.

Kiev's new leaders were installed after three months of protests culminated in days of carnage that claimed nearly 100 lives and led to Yanukovych's replacement by a team that is seeking help from the West.

It escalated further on Monday when Washington announced a raft of tough sanctions against Russia.

"We have, in light of recent events in Ukraine, put on hold all military-to-military engagements between the United States and Russia," US Defense Department spokesman Rear Admiral John Kirby said.

The suspension of the post-Cold War cooperation covers joint exercises and bilateral meetings as well as port visits and planning conferences.

There was no immediate response from either Putin or the Russian foreign ministry to Washington's decision to toughen its stance.

But a top economic aide to Putin who is known for his tought rhetoric against the West warned that Russia could stop using dollars for international transactions and reduce its economic dependence on the Unites States to "zero".

"An attempt to announce sanctions would end in a crash for the financial system of the United States, which would cause the end of the domination of the United States in the global financial system," Sergei Glazyev said.

- 'Wrong side of history' -

US President Barack Obama on Monday accused the Kremlin of being on the "wrong side of history" on Ukraine by violating its sovereignty and international law -- comments that echoed Washington's criticism of Russia position on Syria.

Obama said Washington was "examining a whole series of steps -- economic, diplomatic -- that will isolate Russia."

US officials then announced a series of punitive measures designed to puncture Russia's geopolitical prestige as well as military and economic ambitions.

US media reports cited administration sources as saying Washington would also consider cancelling visas for officials involved in the Crimea operation.

The European Union warned Russia that ties were at risk without a "de-escalation".

Hawkish ex-Soviet satellites in the 28-member bloc are pushing hard for sanctions but others -- including heavyweights France and Germany -- called for soft diplomacy.

EU foreign policy chief Catherine Ashton said ahead of talks with Russian Foreign Minister Sergei Lavrov on Tuesday in Madrid that the 28-nation bloc was considering "targeted measures".

EU leaders are to hold an emergency summit Thursday on the Ukraine crisis. Ukraine's interim prime minister, Arseniy Yatsenyuk, will meet the leaders in Brussels ahead of the gathering.

- Russia defends itself at UN -

Moscow offered a fervent defence of its decision at a tense UN Security Council meeting on Monday requested by the Kremlin.

Russia argued that its citizens were under attack from nationalist Ukrainians and that Kiev's new pro-EU leaders were fanning the flames of cultural tensions.

It also alleged that Yanukovych formally asked Moscow to deploy Russian troops to re-establish law and order in his country.

The Russian representative flashed a photocopy of the letter to other UN Security Council members before quoting the ousted leader as calling on Putin "to use the armed forces... to establish legitimacy, peace, law and order, stability and defending the people of Ukraine".

- Markets recover after Black Monday -

Russia's stock market followed Asian exchanges higher Tuesday after a Black Monday of trading on the Moscow Exchange saw shares lose more than 10 percent of their value and the ruble hit historic lows.

Moscow's two main exchanges were up about three percent on Tuesday afternoon while the ruble regained some of its value a day after the central bank had to spend billions of dollars on keeping the struggling currency from suffering even steeper losses.

Russia's central bank on Monday had taken the dramatic decision to hike the main interest rate to 7.0 from 5.5 percent to stem the flow of investor cash out of the country.

Gazprom's shares were trading flat after tumbling about 13 percent the day before on uncertainty about whether the state-controlled natural gas giant may be ordered to halt deliveries to Ukraine -- and by consequence Western Europe -- as a punitive step by the Kremlin against the new Kiev team.

Oil prices were mixed in Asian trading after rising by nearly two percent on Monday.

An IMF team meanwhile was due to begin a 10-day fact-finding mission in Kiev Tuesday that will weigh the merits of the new Ukrainian government's request for $15 billion in assistance this year.

The new interim leaders are seeking $35 billion of assistance over the coming two years to cover Ukraine's foreign obligations and budget shortfall.