US President Barack Obama has announced new sanctions in a bid to stop President Vladimir Putin from fomenting the rebellion in eastern Ukraine.
The new sanctions, to be outlined in detail later on Monday, will add more people and firms to a list announced last month of figures whose assets are frozen and who are denied visas to travel to the US.
Some high tech exports will also be targeted, Obama said. But the measures do not yet include the wider sanctions, like curbs on the Russian financial and energy sectors, that would do the most serious damage to Russia's economy.
Obama said Washington and its allies were keeping the threat of such sectoral sanctions "in reserve" in case the situation should "escalate further". He conceded he did not know if the measures he has ordered so far will work.
US officials have said the new list will include Putin's "cronies" in the hope of changing his behaviour.
"The goal is not to go after Mr Putin personally; the goal is to change his calculus, to encourage him to walk the walk, not just talk the talk" on diplomacy to resolve the crisis, Obama said in Manila during a trip to Asia.
Nevertheless, such measures have done nothing so far to deter Putin, who overturned decades of post-Cold War diplomacy last month to seize and annex Ukraine's Crimea peninsula and has since massed tens of thousands of troops on the frontier. He acted after Ukraine's pro-Russian president was ousted by protesters demanding closer links with Europe.
Moscow has in the past shrugged off targeted sanctions like those Obama announced on Monday as pointless.
Washington says armed rebels – who have captured towns and government buildings across eastern Ukraine and are holding seven European monitors and a number of Ukrainians hostage – are operating under the direction of Kremlin agents.
Russia denies it is involved and says the uprising is a spontaneous response to oppression of Russian speakers by Kiev.
Rebels take town
The rebels took another town on Monday morning, seizing the police headquarters and municipal administration building in Kostyantynivka, an industrial city in the eastern Donetsk region. Separatists in the province have proclaimed an independent "People's Republic of Donetsk".
A Reuters photographer at the scene saw about 20 gunmen controlling the administration building.
On Sunday the separatists paraded eight unarmed European military monitors before journalists, three days after capturing them. One, a Swede who is diabetic, was freed for medical reasons but the others are still being held, described by the rebel leader as "prisoners of war" and Nato spies.
Armed rebels also occupied Donetsk television on Sunday and ordered it to start broadcasting Russian state TV.
EU measures to follow
The European Union is expected to follow the US by adding to its own list of targeted Russian people and firms, possibly later this week.
But Washington and Brussels have yet to reach agreement on wider measures to hurt the Russian economy more broadly. The EU does more than 10 times as much trade with Russia as the US and buys a quarter of its natural gas from Moscow. Most EU decisions require unanimity among 28 member states.
Western countries say the targeted sanctions are already having an effect on Russia by scaring investors into pulling out capital. The central bank has been forced to hike interest rates to prop up the rouble and Russian firms are finding it more difficult and costly to raise funds.
Russian shares dropped on anticipation of the impact of new sanctions. The rouble-denominated MICEX index was down 1.3% early on Monday. The cost of insuring Russia's debt against default rose to its highest level since November 2011.
Monday's sanctions build on those imposed over Crimea last month, which were deliberately designed to punish individuals close to Putin without having wider impact on Russia's economy or its trade with the West.
The new sanctions could still have a greater impact by widening the net to include personal transactions by the heads of big Russian companies, and the prospect of sectoral sanctions continues to hover over Russian business more generally.
"The heads of Rosneft and Gazprom are rumoured to be on the list of targets," Uralsib bank analysts wrote in a morning note, referring to Russia's two biggest firms, its state oil major and natural gas export monopoly.
"Entire sectors of the economy could be targeted as well. Further sanctions for the energy and banking sectors could continue to harm sentiment if announced this week," they wrote, while adding that it was impossible to assess the impact until measures were announced.
Camouflage fatigues and balaclavas
The pro-Russian rebels seized eight European monitors on Friday and have been holding them at their most heavily fortified redoubt in the town of Slaviansk. A separatist spokesperson said there were no plans to free the others after the Swedish diabetic was released on Sunday.
The captives, from Germany, the Czech Republic, Denmark, Poland and Sweden, were paraded before reporters on Sunday and said they were in good health.
"We have no indication when we will be sent home to our countries," the group's leader, German Colonel Axel Schneider, told reporters as armed men in camouflage fatigues and balaclavas looked on. "We wish from the bottom of our hearts to go back to our nations as soon and as quickly as possible."
Germany denounced the appearance and said Moscow must press their captors to free the prisoners.
"The public parading of the OSCE observers and Ukrainian security forces as prisoners is revolting and blatantly hurts the dignity of the victims," Foreign Minister Frank-Walter Steinmeier said in a statement.
"It is an infringement of every rule of behaviour and standards that are made for tense situations like this. Russia has a duty to influence the separatists so that the detained members of the OSCE mission are freed as soon as possible." – Reuters