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Ukraine Rebels Call Cease-Fire to Match Government Truce

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June 24 (Bloomberg) -- Pro-Russian rebels in eastern Ukraine called a cease-fire in fighting against government forces, matching a truce announced four days ago by President Petro Poroshenko.

The separatists’ decision may ease a crisis that’s left hundreds dead in the former Soviet republic and led to the worst standoff between Russia and the U.S. and its European allies since the Cold War. The breakthrough comes as Russian President Vladimir Putin prepares to visit Vienna today.

The prime minister of the self-proclaimed Donetsk People’s Republic, Alexander Borodai, said last night that separatist fighters in the Donetsk region would halt hostilities until June 27 as long as government troops do the same. In comments broadcast on Rossiya 24 television, Borodai said his group is seeking talks with the Ukrainian government before that date, when Poroshenko’s cease-fire is also due to expire.

“From the Russian perspective, there seems to be a desire to engage in negotiations rather than continued military operations,” Masha Lipman, an analyst at Carnegie Moscow Center, said by telephone. “Its motives can be various -- a desire to avoid more sanctions and concern about escalating conflict on Russia’s borders.”

Rebels in the other breakaway, mainly Russian-speaking region of Luhansk also agreed to a truce, Rossiya 24 reported. The announcement came after talks in Donetsk yesterday that involved former Ukrainian President Leonid Kuchma and Russia’s ambassador to Ukraine, Mikhail Zurabov.

Markets Rally

Ukrainian dollar-denominated bonds due in April 2023 rose for the first time in three days, reducing the yield seven basis points to 9.07 percent as of 11:22 a.m. in Kiev. The ruble rallied, strengthening 0.4 percent against the dollar and heading for its strongest close since January.

Ukraine’s Defense Ministry reported minor incidents overnight. A checkpoint in the Luhansk region came under rifle fire by militants overnight, Defense Ministry spokesman Vladyslav Seleznyov said in a Facebook post. No Ukrainian forces were injured.

The U.S. and the European Union have accused Putin, who annexed Ukraine’s Crimea peninsula in March, of allowing weapons to flow to the separatists across the Ukrainian border and building up its military forces along the frontier again.

Troop Buildup

“At least a few thousand more troops” from Russia have been sent to the border, a U.S. Defense Department spokesman, Army Colonel Steve Warren, told reporters at the Pentagon yesterday. “Russia has accumulated artillery at a deployment site in southwest Russia and we believe Russia might soon provide this equipment to separatist fighters.”

U.S. President Barack Obama spoke with Putin yesterday to urge him to use his influence to promote peace and stability in Ukraine, White House spokesman Josh Earnest told reporters.

Putin is due to hold talks with Austrian President Heinz Fischer as well as Didier Burkhalter, chairman of the Organization for Security and Cooperation in Europe.

Moscow-based gas producer OAO Gazprom is set to sign an accord with OMV AG on a joint venture for the Austrian section of the planned South Stream pipeline, which will circumvent Ukraine, now a key transit route for Russian exports to Europe.

Poroshenko suggested that Russia send inspectors to join an OSCE team to monitor the cease-fire by government forces, according to a statement published on his website.

EU’s Call

The developments in eastern Ukraine came after EU foreign ministers demanded concrete action from Putin to end the violence.

“The EU calls on the Russian Federation to support the peace plan and to adopt effective measures to stop the continued flow of illegal fighters, arms and equipment,” the ministers said in a statement in Luxembourg. They urged Russia “to use its influence on the separatists to stop the violence and lay down their arms, to continue withdrawing and refrain from gathering troops again near the Ukrainian border.”

Putin put more than 65,000 troops on combat alert over the weekend and called a snap military drill in the Central Military District, which doesn’t share a border with Ukraine.

The U.S. expanded sanctions last week to more people linked to the insurgency. U.S. and European officials have warned that more painful penalties affecting Russia’s access to financial markets, technology and military hardware may come as early as this week if Putin fails to curb tensions.

Sanctions Risk

The EU has imposed asset freezes and travel bans on 61 people, stopping short so far of broader sanctions on investment or trade with Russia. Dutch Foreign Minister Frans Timmermans told reporters sanctions may be discussed at a June 26-27 EU summit.

“We’re ready to add to those measures if necessary -- no one in Moscow should be in any doubt about that,” U.K. Foreign Secretary William Hague said.

The Donetsk regional governor’s office said on its website before the separatists’ truce announcement that the situation remained tense in six towns, with shooting reported in Artemivsk and Horlivka.

To contact the reporters on this story: Kateryna Choursina in Kiev at kchoursina@bloomberg.net; Henry Meyer in Moscow at hmeyer4@bloomberg.net

To contact the editors responsible for this story: Balazs Penz at bpenz@bloomberg.net; James M. Gomez at jagomez@bloomberg.net Scott Rose, Paul Abelsky

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