By Darya Korsunskaya and Natalia Zinets
MOSCOW/KYIV (Reuters) - Russia suggested on Monday that it was ready to keep talking to the West to try to defuse a security crisis, while the United States said Moscow was adding to its military capabilities by the day for a potential attack on Ukraine.
Russia has more than 100,000 troops massed near the border of Ukraine. It denies Western accusations that it is planning an invasion, but says it could take unspecified "military-technical" action unless a range of demands are met, including barring Kyiv from ever joining the NATO alliance.
In a televised exchange, President Vladimir Putin was shown asking his foreign minister, Sergei Lavrov, whether there was a chance of an agreement to address Russia's security concerns, or whether it was just being dragged into tortuous negotiations.
Lavrov replied: "We have already warned more than once that we will not allow endless negotiations on questions that demand a solution today."
But he added: "It seems to me that our possibilities are far from exhausted ... At this stage, I would suggest continuing and building them up."
Washington has said Russia could invade Ukraine "any day now". Putin is adding more military force and capability near Ukraine's border with each passing day, Pentagon spokesperson John Kirby told MSNBC in an interview on Monday.
"This is a military that, that continues to grow stronger, continues to grow more ready. They're exercising, so we believe that he has a lot of capabilities and options available to him should he want to use military force," Kirby said.
Western countries have already promised sanctions on an unprecedented scale if Russia does invade. The Group of Seven large economies (G7) warned of "economic and financial sanctions which will have massive and immediate consequences on the Russian economy".
Ukraine's ambassador to Britain, quoted earlier by the BBC as saying that Kyiv might be "flexible" about its goal of one day joining NATO, said on Monday he had been misunderstood and there was no suggestion it would withdraw its application.
U.N. Secretary-General Antonio Guterres spoke separately on Monday with the foreign ministers of Russia and Ukraine, and still believed "from his own analysis, his own hopes" that there would not be a conflict, a U.N. spokesperson said.
STOCKS SLIDE
Moscow says Ukraine's quest to join the Western military alliance poses a threat. While NATO has no immediate plans to admit Ukraine, Western countries say they cannot negotiate over a sovereign country's right to form alliances.
Eight years ago, mass protests on Kyiv's Maidan square in favour of closer integration with the West forced out pro-Russian president Viktor Yanukovych. Russia responded by seizing and annexing Ukraine's Crimean peninsula, and backing pro-Russian rebels in parts of Ukraine's industrial east in a war that has killed more than 14,000 people.
Monday's talk of diplomatic efforts continuing brought the price of crude oil down off the seven-year highs it had hit earlier amid concerns that sanctions would disrupt exports from Russia, a major producer, in an already tight market. [O/R]
Major European stock markets slumped by between 2% and 3%, although Wall Street's S&P 500 index, which had tumbled at the end of last week, was flat on Monday by early afternoon.
Sanctions could ultimately rebound on Western powers, which rely heavily on Russia for energy supplies.
ECONOMIC DAMAGE
Ukraine is already suffering economic damage from the standoff. A surge in the price of 5-year credit default swaps on Ukrainian sovereign bonds suggested that markets gave Kyiv a 42% probability of defaulting.
U.S. national security adviser Jake Sullivan told congressional leaders on Monday that Washington was considering offering Ukraine up to $1 billion in sovereign loan guarantees to calm markets, a source familiar with the adviser's call told Reuters.
Ukraine International Airlines, Ukraine's biggest airline, said its insurers had terminated cover for at least some of its aircraft on flights in Ukrainian airspace.
Lavrov told Putin the United States had put forward concrete proposals on reducing military risks, but that responses from NATO and the European Union - which has been at pains not to let Moscow divide its members - had not been satisfactory.
An EU official, who asked not to be identified but has spoken to Putin by phone in the past, said the EU was looking at alternative sources of energy in case Russia cut off supplies.
"Russia is trying to demonstrate that it is the policeman in the region," the source said. "The criticism by Moscow against Ukraine is this idea that the people made a choice for liberal democracy, values, principles and freedoms."
German Chancellor Olaf Scholz held talks in Kyiv with President Volodymyr Zelenskiy. On Tuesday, he is due to fly to Moscow, the latest Western official to make the trip after French President Emmanuel Macron and two British ministers went last week.
Scholz said he saw "no reasonable justification" for Russia's military activity on Ukraine's border, and that "we are ready for a serious dialogue with Russia on European security issues". He announced a credit of 150 million euros ($170 million) for Ukraine.
While Zelenskiy affirmed that Ukraine would not give up its push to join NATO, Scholz said it was strange that Russia had raised the issue just now, when it was "not on the agenda".
($1 = 0.8838 euros)
(Darya Korsunskaya in Moscow and Natalia Zinets in Kyiv; additional reporting by Dmitry Antonov and Maria Kiselyova in Moscow, Guy Faulconbridge in London; Thomas Escritt in Berlin; Chen Lin in Singapore; Shreyashi Sanyal, Anisha Sircar and Muviya M in Bengaluru; Writing by Kevin Liffey and Peter Graff; Editing by Andrew Cawthorne, Jon Boyle, Alison Williams and Grant McCool)