Putin says Russia can use 'all means' in Ukraine

Russian forces surrounding air base in Belbek near Sevastopol fire warning shots at Ukrainian servicemen.

President Vladimir Putin on Tuesday defended Russia's right to use "all means" to protect its citizens in Ukraine but denied he had already deployed troops there, as the West pressed Moscow in a Cold War-style standoff over the ex-Soviet state.

His comments, which calmed frightened markets somewhat, came as US Secretary of State John Kerry arrived in Kiev for talks with interim leaders.

"We are going to help you. We are helping you. President Obama is planning for more assistance," Kerry told the crowds as he visited a shrine to commemorate those killed in Kiev's uprising last month.

Washington said it will provide $1 billion in loan guarantees to Ukraine, while the European Commission said it would on Wednesday also offer an aid package reportedly worth more than one billion euros.

The United States and the European Union also warned Russia would likely face sanctions as early as this week if Moscow did not de-escalate the situation.

There was no immediate sign of an end to tensions in Ukraine's Crimean peninsula, however.

Pro-Moscow forces remained in de-facto control of the strategic Black Sea territory that has housed the Russian Black Sea Fleet since the 18th century.

The scale of the tensions was underlined on Tuesday when a Ukrainian officer said Russian forces surrounding an air base in Belbek near the Black Sea Fleet base in Sevastopol fired warning shots at Ukrainian servicemen trying to approach.

Putin, speaking to journalists in a news conference televised live, denied Russian forces were involved in the armed operations in Crimea that started late last week.

"No, they did not participate," he said. "There are lots of uniforms that look similar."

However he stressed that "we reserve the right to use all means to protect" Russia and Ukrainian citizens, though an invasion would be "an extreme measure".

He said there was currently "no need" to send troops into Ukraine.

At the same time, he dismissed the authority of Kiev's new government, saying Ukraine's toppled president Viktor Yanukovych remained the "legitimate" leader. Yanukovych, he said, had requested Russian military action in Ukraine.

Putin's comments about Russian use of force were interpreted by markets as a possible easing of the worst crisis in Europe since the fall of the Berlin Wall in 1989.

European markets bounced back from deep losses suffered on Monday, when fears of war breaking out on Europe's eastern edge had taken hold, axing more than 10 percent of the value of shares trading in Moscow and sending the Ruble to historic lows.

Moscow's two main exchanges were up more than five percent on Tuesday 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.

London's benchmark FTSE 100 index rallied 1.4 percent in mid-session deals. Frankfurt's DAX 30 jumped 2.0 percent and in Paris the CAC 40 gained 2.3 percent.

The dollar and euro also clawed back some of Monday's losses against haven currency the yen as a degree of confidence returned to the market. Gold and oil prices fell from multi-month highs.

Russia's state-controlled energy giant Gazprom said it would end a discount it gives Ukraine on gas prices from April but proposed a loan of up to $3 billion to Kiev to cover its debt.

The West indicated Tuesday it would not let up its pressure on Russia.

A US official travelling with Kerry to Kiev said Russia was "likely" to face US moves to introduce sanctions as early as this week.

EU foreign ministers on Monday, condemning Russia's actions, had warned that ties with Moscow were at risk unless it reversed course and took steps to de-escalate the crisis by the emergency summit of EU leaders on Thursday.

Ukraine Prime Minister Arseniy Yatsenyuk will travel to Brussles to meet the EU leaders before the summit.

EU foreign policy chief Catherine Ashton is due to meet Lavrov in Madrid on Tuesday and then go on to Kiev on Wednesday.

Russian Foreign Minister Sergei Lavrov called threats of sanctions were "ill-advised".

"Our position is honest and... will not change," Lavrov told reporters during an official visit to Tunisia.

"We have always opposed the policy of unilateral sanctions. I hope our partners understand that such actions are counter-productive."

Beyond sanctions, though, the United States and its allies appear to have limited options in dealing with Putin's actions on Ukraine, which many saw as a bid to rebuild vestiges of the Soviet empire.

German Foreign Minister Frank-Walter Steinmeier warned there was no solution in sight after a "difficult" discussion in Geneva on Tuesday with Lavrov.

"I can't run up a flag to say that we are on the way to finding a solution and that Ukraine and Russia are about to start talking," he added.

Foreign Secretary William Hague, meanwhile, insisted that Britain's options in dealing with Russia over the Ukrainian crisis remained open after an official document suggesting London was opposed to trade sanctions was photographed in a senior official's hand and made public.

Hague did not deny the content of the briefing paper. But he insisted that Britain's options remained "very much open".