People riding motorcycles past the remains of a spent ammunition in the suburbs of Donetsk yesterday. Photo: ReutersPeople riding motorcycles past the remains of a spent ammunition in the suburbs of Donetsk yesterday. Photo: Reuters

The European Union agreed for the first time yesterday to impose broad sanctions against Russian oil companies, banks and defence firms, by far the strongest international action yet over Moscow’s support for rebels in eastern Ukraine.

The US could announce new measures of its own “as soon as today”, the White House said.

The measures mark the start of a new phase in the biggest confrontation between Moscow and the West since the Cold War, which worsened dramatically after the downing of Malaysian flight MH17 over rebel-held territory on July 17 by what Western countries say was a Russian-supplied missile.

Diplomats said ambassadors from the 28-member European bloc agreed to restrictions on trade of equipment for the oil and defence sectors, and ‘dual use’ technology with both defence and civilian purposes. Russia’s state-run banks would be barred from raising funds in European capital markets. The measures would be reviewed in three months.

German Chancellor Angela Merkel, who had been reluctant to step up sanctions before the crash because of her country’s trade links with Russia, said the latest EU measures were “unavoidable”.

Previously Europe had imposed sanctions only on individuals and organisations accused of direct involvement in threatening Ukraine, and had shied away from wider ‘sectoral sanctions’ designed to damage its biggest energy supplier.

The new measures have been coordinated with Washington in the hope that Russian President Vladimir Putin will back down from a months-long campaign to seize territory and disrupt Ukraine, whose pro-Moscow leader was toppled in February.

But Putin has shown no sign of backing down. Indeed, despite the international condemnation following the downing of the airliner, Western countries say the Kremlin has stepped up support for separatists by sending them more heavy weaponry.

Moscow denies it is arming the rebels, protestations that are ridiculed in the West.

On the ground yesterday, intense fighting between government troops and pro-Russian rebels killed dozens of civilians, soldiers and rebels over the past 24 hours, as Kiev pressed on with an offensive to defeat the Moscow-backed revolt.

Shells hit the centre of Donetsk, a city with a pre-war population of nearly a million people where residents fear they will be trapped on a battlefield between advancing Ukrainian troops and Russian-backed rebels who have vowed to make a stand.

No more! I cannot live in this death row anymore!

Ukrainian forces have been pushing rebel units back towards their two main urban strongholds of Donetsk and Luhansk and have sought to encircle them in several places.

The government says its forces have retaken several villages in the rolling countryside near where the airliner crashed, killing all 298 passengers, most of them Dutch.

In Donetsk, the body of a dead man lay in rubble behind a badly damaged 10-storey residential building close to the city centre, hit by shelling. Rebels at the scene placed body parts on a nylon sheet and carried it on a stretcher to a green van.

“There, that’s their ‘separatists’. That’s their ‘rebel commander’,” said a distressed woman in her 60s, gesturing towards the body.

“They are killing neighbours. They are killing people, ordinary people.”

Another middle-aged woman, who gave her name as Katarina, charged out of the building next door carrying two bags.

“No more! I cannot live in this death row anymore!” she said. “I am leaving! I don’t know where!”

Donetsk officials said two people were killed in the shelling of the city.

Municipal officials said up to 17 people, including children, were killed in fighting on Monday evening in the town of Horlivka, a rebel stronghold north of Donetsk that saw fierce battles between the rival forces in the last few days.

In the city of Luhansk, officials said five civilians were killed when shelling hit a retirement home.

“The enemy is throwing everything it has into the battle to complete encirclement of the DNR,” Igor Strelkov, a Muscovite rebel commander, told journalists in Donetsk on Monday evening, referring to the self-proclaimed ‘Donetsk People’s Republic’.

A rebel source in Donetsk said reinforcements including military equipment and fighters had arrived across the border from Russia.

Reuters was not able to confirm that independently.

A spokesman for Ukraine’s Security Council, Andriy Lysenko, blamed Russia for shelling a Ukrainian border crossing point and military positions from across the border to help the rebels. Moscow has also accused Ukraine of firing across the frontier.

Washington says the airliner was almost certainly shot down accidentally by rebels using a Russian missile.

Russia’s oil industry has been targeted but its natural gas, which powers European industry and lights its cities, has been spared.

“These sanctions are harder than anything we have ever had before,” said James Nixey of British think tank Chatham House.

“It will hurt a little bit but it’s a down payment on the future security of Europe. It’s a question of Western credibility.”

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