(Reuters) - Some Ukrainian forces began to pull out of a town under siege by Russian-backed separatists on Wednesday as renewed fighting threatened to wreck an international deal aimed at ending the conflict.
Rebel forces, who the pro-Western government in Kiev say are supported and armed by Moscow, fought their way into the eastern Ukrainian town of Debaltseve on Tuesday, ignoring a ceasefire which came into effect on Sunday.
Rebels say the truce, negotiated by Ukraine, Russia, Germany and France at a summit in Belarus last week, does not apply to Debaltseve, a railway and transport hub which links the two rebel-controlled regions of eastern Ukraine.
Pro-government commanders said some forces had pulled out but there were reports of continued fighting in the town.
"The withdrawal of forces from Debaltseve is taking place in a planned and organized way," said Semen Semenchenko, who heads the Donbass paramilitary battalion.
"The enemy is trying to cut the roads and prevent the exit of the troops," he said on Facebook.
Another pro-government paramilitary leader, Mykola Kolesnyk, told a television channel that not all troops were pulling out.
"We are talking only about units which are surrounded in populated areas in and around the town," he said.
A senior Ukrainian police official said fighting was going on in the town. The Ukrainian Defence Ministry, in an early morning statement, also reported fighting there.
News of the withdrawal immediately affected financial markets, with the cost of insuring exposure to Ukrainian debt and the spreads of the country's dollar bonds over safe haven U.S. treasury bills soaring to record highs.
Russian President Vladimir Putin, whom Kiev and Western countries accuse of directing the rebels' tank and artillery assault on the town, said on Tuesday that the Ukrainian government should let its soldiers surrender.
Even before the Ukrainian troops were forced to pull back, last week's peace deal had all but collapsed, with both sides failing to pull back heavy guns as required after the rebels refused to halt their advance.
Putin said Kiev should allow its soldiers to surrender to the advancing rebels.
"I hope that the responsible figures in the Ukrainian leadership will not hinder soldiers in the Ukrainian army from putting down their weapons," Putin said during a visit to Turkey.
He hoped the rebels would allow the Ukrainians to return to their families, once they had surrendered the town.
Reuters journalists near the snowbound front line on Tuesday said artillery rounds were rocking Debaltseve every five seconds as Grad rockets pounded the town.
The rebels say the ceasefire does not apply to Debaltseve, which lies in a pocket between rebel-held areas.
"SURRENDER TALKS"
"Eighty percent of Debaltseve is already ours," said Eduard Basurin, a rebel leader, on Tuesday. "A clean-up of the town is under way."
He later said negotiations were under way for 5,000 Ukrainian troops to surrender. "Hundreds" had been captured and would eventually be released. Ukraine denied that the number of captives was that high.
Despite Putin's public call for a surrender, Russia sponsored a resolution adopted by the U.N. Security Council that called on all sides to implement the truce agreement, expressing "grave concern" at the violence.
Hopes that the deal reached last Thursday would end a conflict that has killed more than 5,000 people were always low after a rebel advance in January ended an earlier truce.
Russia has already annexed Ukraine's Crimean Peninsula, and Western countries believe Putin's goal is to establish a "frozen conflict" in eastern Ukraine, gaining permanent leverage over a country of 45 million people seeking integration with Europe.
Ukrainian President Petro Poroshenko called the rebel assault on Debaltseve a cynical attack on the Minsk agreement.Kiev and NATO say the rebel assault on Debaltseve is being reinforced by Russian tanks, artillery and soldiers. Moscow denies that it has sent its forces to join the battle for a region that Putin has called "New Russia".
Washington said it was "gravely concerned" by the fighting and was monitoring reports of a new column of Russian military equipment heading to the area.
The United States has been considering sending weapons to aid Kiev, although the State Department said on Tuesday getting into a proxy war with Russia was not in the interests of Ukraine or the world. Putin said he believed foreign weapons were already being supplied to Kiev.
Observers from the OSCE security group, delegated to monitor the ceasefire under last week's agreement, have been kept out of Debaltseve by the rebels.
(Additional reporting by Pavel Polityuk, Natalia Zinets, Alessandra Prentice and Richard Balmforth in Kiev, Polina Devitt in Moscow; Editing by Giles Elgood)
Reuters
BY PAVEL POLITYUK
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