(Updates with end of bilateral meeting in second paragraph. For more on the conflict in Ukraine, see EXT2.)
Aug. 26 (Bloomberg) -- Russian President Vladimir Putin met his Ukrainian counterpart, Petro Poroshenko, to try to ease tension between the two countries after five months of separatist unrest as violence flared on their border.
“Complicated” talks were held today, with the sides at times presenting “radically different” positions at a summit of the Russian-led Customs Union in Minsk, Belarus, according to that country’s president, Aleksandr Lukashenko. A bilateral meeting between Putin and Poroshenko ended this evening, the Kremlin said. Putin said earlier he’s ready for an exchange of opinions on Ukraine, while Poroshenko said he’s optimistic about the meeting, which includes European Union foreign-policy chief Catherine Ashton and Kazakhstan’s leader.
“I understand that all players who’ve been drawn into the situation would like to exit with dignity,” Poroshenko said in Russian before the meeting. “I’m ready to discuss different options that would allow such an exit strategy -- an exit to a peaceful future for Ukraine, an exit to a peaceful future for Europe.”
The conflict between Ukraine’s government and pro-Russian separatists has left at least 2,000 dead since Putin annexed Crimea in March. Ukraine said today that 200 rebels and 12 Ukrainian servicemen died in the past 24 hours.
A military spokesman, Andriy Lysenko, accused Russia of attempting to “create a new front” in the fighting close to the Sea of Azov in the southern Donetsk region. Ukraine released video footage of Russian servicemen it said it captured when an armored column crossed the frontier yesterday.
Poroshenko called for Russia, Belarus and Kazakhstan to support a peace plan for eastern Ukraine, saying his nation’s territorial integrity must be respected. He also said Ukraine’s free-trade pact with the EU is compatible with Customs Union rules and that his government is interested in agreements with the trading bloc championed by Putin.
The parties agreed to hold regular meetings in Minsk, according to Lukashenko.
The yield on dollar-denominated Ukrainian government bonds due in July 2017 rose 42 basis points to 10.66 percent, a two- week high. The hryvnia depreciated as much as 1.1 percent before closing unchanged at 13.55 per dollar.
Russia’s Micex stock index fell 0.8 percent, while the ruble was down 0.1 percent against a target euro-dollar basket. Russia’s Finance Ministry canceled a ruble-bond auction scheduled for tomorrow, the sixth in a row, citing “unfavorable market conditions.”
Fighting raged on in Ukraine’s east. Rebels attacked the coastal town of Novoazovsk, near the Russian border and continued shelling Donetsk, Lysenko told reporters in Kiev. The separatists are mounting a counterattack to the government’s offensive, he said.
Three civilians were killed in the rebel stronghold of Donetsk by overnight shelling that also damaged the power grid, the city council said on its website.
Ukraine said yesterday it destroyed two tanks, captured crew members and seized other vehicles from an armored column flying separatist banners that advanced from Russia toward the port city of Mariupol, west of Novoazovsk. Lysenko said today the Russians it detained were “on a mission.”
The video released by Ukraine’s Defense Ministry showed men in military fatigues. Ukraine said they were Russian paratroopers. One, named as Sergey Smirnov, said they were ordered to paint out Russian markings on their vehicles and paint on white circles instead before being sent to Ukraine without documents and mobile phones.
“I didn’t even see where we crossed the border,” said another man, identified as Ivan Michalkov.
Russia’s state-run RIA Novosti news service cited an unidentified Defense Ministry official as saying that troops who were patrolling the border crossed into Ukraine accidentally and didn’t resist when detained.
U.S. National Security Adviser Susan Rice said on Twitter that repeated Russian military incursions into Ukraine are “dangerous and inflammatory.”
German Chancellor Angela Merkel, who met Poroshenko in Kiev two days ago and spoke with him by phone late last night, said “one big breakthrough” is unlikely today. Ukrainian Foreign Minister Pavlo Klimkin said on Twitter the Minsk talks will be “difficult,” though “the president is resolute.”
While Russia has repeatedly denied any involvement in the conflict, the U.S. and its EU allies say Putin is supplying the insurgents with weapons, manpower and financing and say he could stop the war if he reined in the separatists.
Meanwhile, Poroshenko dissolved parliament and called early legislative elections for Oct. 26. The ruling coalition collapsed last month when two parties pulled out to force a snap vote. Arseniy Yatsenyuk, who became prime minister in February after months of street protests turned deadly and led to the ouster of the then president, Viktor Yanukovych, will remain in a caretaker role.
Russia aims to enter the negotiations with “the strongest possible hand,” said Alexei Makarkin, a deputy director at the Moscow-based Center for Political Technologies.
“The Kremlin’s moves to boost the rebels’ position and Lavrov’s hard-line statements, while seeming to contradict Russia’s stated desire to reach a deal, are aimed at entering the talks from a position of strength,” Makarkin said by phone yesterday.
--With assistance from Kateryna Choursina and Volodymyr Verbyany in Kiev.