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Russian bailout wins Ukraine economic respite but deepens political rift

MOSCOW - Ukraine's President Viktor Yanukovich has secured a US$15 billion bailout from Russia, offering respite for an economy heading ever closer to default but also drawing accusations he has sold his country out to its former Soviet master.

By grasping the lifeline thrown by Russian leader Vladimir Putin, Yanukovich reignited demands for his resignation by opponents at home already enraged by his decision to walk away from a trade and political deal with the European Union.

Tens of thousands of protesters gathered in Kiev after Yanukovich accepted Putin's offer on Tuesday to buy Ukrainian bonds and cut the price of Russian gas exports, a deal which keeps Kiev firmly in Moscow's orbit.

"We want to go towards Europe, not Russia, that's our choice," said Yulia, a student protester, after news of the agreement struck when the two presidents met in the Kremlin.

Opposition leaders have called for mass rallies over the holiday season on a central square occupied for weeks by protesters, who have pitched tents behind tall barricades.

"He has given up Ukraine's national interests, given up independence," Vitaly Klitschko, an opposition leader and heavyweight boxing champion, told the crowd on Tuesday.

Ukraine urgently needs money to cover an external funding gap of US$17 billion next year - almost the level of the central bank's depleted currency reserves - and avoid defaulting on its debts.

Underlining the depth of the problem, Russian Finance Minister Anton Siluanov said Moscow would buy US$3 billion worth of Ukrainian Eurobonds as early as the end of this week, marking the first installment in debt purchases that will total US$15 billion.

However, the United States warned Kiev the deal would not satisfy the protesters and German Chancellor Angela Merkel said ties with Russia should not prevent Kiev from looking West.

"At the moment it seems to be an either-or proposition. ... We need to put an end to this," Merkel told ARD TV. "A bidding competition won't solve the problem."

Ukraine is caught between Western powers, keen to coax the country into an embrace on the EU's borders, and Moscow which has historically held sway over Kiev.

Putin seems determined to stop Ukraine, by far the most populous former Soviet republic after Russia, from building a new and close relationship with the EU.

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Ukrainian President Viktor Yanukovych winks at Russia's President Vladimir Putin (R) during a signing ceremony at the Kremlin in Moscow, on December 17.

(AFP)

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