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Ukraine in deadly assault on rebel-held town, raising stakes

Ukraine on Friday launched a military assault on the flashpoint town of Slavyansk, raising the stakes in the showdown with Russia, which has vowed "catastrophic consequences" if Kiev stepped up operations.

SLAVYANSK: Ukraine on Friday launched a military assault on the flashpoint town of Slavyansk, raising the stakes in the showdown with Russia, which has vowed "catastrophic consequences" if Kiev stepped up operations.

Insurgents shot down two army helicopters, killing two servicemen, including a pilot, as the army tightened its noose around the rebel-held town of 160,000 people.

The pre-dawn offensive drew a sharp response from Moscow, where a spokesman for President Vladimir Putin said it dealt a "final blow" to a deal clinched last month in Geneva meant to ease the crisis.

A spokeswoman for insurgents in Slavyansk, the epicentre of tensions in eastern Ukraine, said the army had staged a "full-scale attack" on the town.

An AFP reporter on the scene saw a column of eight armoured vehicles breaching a rebel-held checkpoint just south of Slavyansk and heard explosions and sporadic small arms fire as helicopters circled overhead.

The raid marked a dramatic escalation in the crisis and jeopardised negotiations to release seven European OSCE inspectors being held by Slavyank's insurgents.

The Kremlin said it had an envoy in east Ukraine negotiating for their freedom.

A day earlier, Ukraine's interim president reintroduced conscription amid fears of an imminent Russian invasion.

Oleksandr Turchynov has also put his armed forces on "full-combat alert" in response to the estimated 40,000 Russian troops massed on the border.

He has admitted police are powerless to stop a growing insurgency in the eastern part of the country, where pro-Russian rebels have seized control of more than a dozen towns and cities.

As the crisis rapidly spirals into the worse East-West confrontation since the end of the Cold War, US President Barack Obama was due to discuss the tensions with German Chancellor Angela Merkel at the White House later on Friday.

Interior Minister Arsen Avakov announced the Slavyansk death toll on his Facebook page, adding that there were also personnel wounded in the operation.

"It's a real battle we are waging against professional mercenaries," he wrote, warning local residents to stay indoors and keep away from windows.

"Our demands for the terrorists are simple: release their hostages, lay down their arms, leave administrative buildings and restore the normal functioning of the urban infrastructure."

One Slavyansk resident, Vladimir Pader, told Russian television: "Everyone -- rebels and Slavyansk residents -- is determined not to surrender the city."

Eight armoured vehicles and several soldiers were seen retrenching positions at checkpoints and warned off anybody trying to approach.

Authorities said they had retaken nine rebel checkpoints.

Central Slavyansk remained relatively calm, although rebels parked a previously captured armoured vehicle in front of the town hall where the OSCE monitors are being held.

In what they called an "anti-terrorist" operation, the Ukrainian forces had for days encircled the town to prevent the insurgents receiving reinforcements.

Russia's foreign ministry warned on Thursday that any effort by Kiev to intensify its military operation "against its own people" in the east could have "catastrophic consequences".

And Russian news agencies quoted Putin's spokesman Dmitry Peskov as saying that while Moscow was "making efforts to de-escalate and settle the conflict", Kiev had launched a "reprisal raid".

He said the raid was "essentially finishing off the last hope for the feasibility of the Geneva accord".

Russia's envoy to the OSCE, Andrei Kelin, said Moscow had urged the pan-European body to "take steps to stop this reprisal raid", according to the ITAR-TASS news agency.

Hopes had been raised in recent days that the seven OSCE hostages in Slavyansk -- four Germans, a Dane, a Czech and a Pole -- might soon be released but Ukraine has accused the rebels of wanting to use them as human shields.

The West and Kiev believe the chaos in eastern Ukraine is being sown by Moscow in a bid to destabilise the former Soviet republic ahead of planned presidential elections on May 25.

The Kremlin denies the charges, but has reserved the right to use troops to protect Russian speakers in eastern Ukraine, a region with deep cultural and historical ties to Moscow.

The Western response has been to launch sanctions against members of Putin's inner circle and target key firms in a bid to attack Russia's already recession-hit economy.

Moscow has reacted angrily, threatening to retaliate against Western interests in the lucrative energy sector but has vowed a measured response.

All eyes are now on Obama and Merkel's meeting in Washington to see what the West's next move will be.

Also later on Friday, Russia, Ukraine and the European Union will hold talks over debts running into billions of dollars that state-run Russian gas firm Gazprom says Kiev owes.

Putin has warned that not paying the bill, which Gazprom estimates at US$3.5 billion, could lead to him turning off the taps, which would also affect several European countries.

Kiev is expected to use part of a US$17-billion loan from the International Monetary Fund, announced on Wednesday, to settle the bill.

Financial market analyst Holder Schmieding said the situation in Ukraine was "a whale of a risk" for the European economy.

The unrest in Ukraine, which started with peaceful demonstrations in Kiev in November against pro-Kremlin president Viktor Yanukovych's decision to ditch a pact for closer integration with the EU, has rapidly degenerated into a full-blown global crisis.

After a deadly crackdown on protesters, Yanukovych was forced out in February, sparking fury in Moscow which responded with a blitz annexation of Crimea.

The pro-Russia rebels who have been steadily taking more ground in the east vow to hold their own Crimea-style "referendum" on independence on May 11 -- two weeks before the nationwide presidential vote.

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