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Putin urges economic retaliation for sanctions

Russia should retaliate against the economic sanctions being imposed on the country over the Kremlin's Ukraine policy, President Vladimir V. Putin said Tuesday. His was the strongest endorsement yet for calls in Russia to ban everything from major Western accounting firms to overflights by European airlines to frozen American chickens.

Mr. Putin said that Russia should signal that it finds the economic sanctions offensive, but that it should do so without harming Russian consumers.

"The political tools of economic pressure are unacceptable and run counter to all norms and rules," he was quoted as saying by Russian news agencies.

He noted in a meeting with a local governor south of Moscow that the Russian government had already proposed a number of measures "in order to protect the interests of national manufacturers of consumer goods," the agencies reported. Dmitri A. Medvedev, the prime minister, was also quoted on Tuesday as saying, "We need to discuss possible retaliatory measures."

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The new sanctions imposed against Russia by the United States and the European Union were prompted by outrage over the suspicion that Russia was continuing to supply the pro-Russian separatists in eastern Ukraine with weapons, possibly including the antiaircraft missile believed to have shot down a civilian passenger jet, killing all 298 aboard. Russia has suggested that Ukraine was responsible.

The government of Ukraine said Tuesday that it would continue to press its offensive against the separatists, and that there were reports of shelling and fighting in several suburbs of Donetsk, the main rebel stronghold.

Initially, Sergey V. Lavrov, the Russian foreign minister, reacted to Western sanctions by saying Moscow would not resort to "eye-for-an-eye" retaliatory measures.

Read MoreAeroflot subsidiary grounded by European sanctions

Then, in the first significant fallout, a subsidiary of Aeroflot, the main Russian international airline, said it was halting all flights to Crimea and scrapping its plans to expand its domestic service because European sanctions effectively ended its leases for Boeing 737-800 aircraft.

In April, a month after Russia annexed Crimea, Mr. Putin urged Russians to vacation there and promised subsidized tickets. The Aeroflot subsidiary, Dobrolet, was a main instrument of that policy, offering low fares from Moscow.

The broadened Western sanctions cover state-owned banks, military hardware, some technology for the energy industry, and entities doing business in Crimea, like Dobrolet.

Japan joined in on Tuesday with its own list of individuals and entities whose assets in Japan would be frozen.

Russia has already taken some retaliatory steps, banning certain food imports, including Ukrainian dairy products, Polish apples, Australian beef, pork from various neighbors and Moldovan fruit. The Russian news media has reported that American chickens might be next.

Read MoreWhy an aggressive Russia scares markets most

There is also talk of barring airlines like Lufthansa, Air France and British Airways from routing their long-haul flights to Asia across Siberia, the shortest and cheapest flight path. The business daily newspaper Vedomosti noted that the foreign carriers paid Aeroflot $300 million a year to use those routes, and the news of a possible ban hammered Aeroflot's stock price on Tuesday.

Some Russian legislators have proposed barring six major consulting and accounting firms from "aggressor countries" — Deloitte, Ernst & Young, KPMG, PricewaterhouseCoopers, the Boston Consulting Group and McKinsey — from doing business in Russia.

Senior government officials, including Mr. Putin, call almost daily for Russia to resurrect industries like domestic airplane production that withered under Western competition after the collapse of the Soviet Union.

Mr. Putin's emphasis on sparing Russian consumers came after news reports that as many as 27,000 Russian tourists had been stranded overseas in recent weeks after four large travel agencies went bankrupt. Their collapse was linked to a ban imposed informally in April, blocking anyone working in law enforcement — about four million Russians — from vacationing abroad.

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There were mixed reports from Ukraine on Tuesday about the fighting there. The government said its armed forces were not trying to storm rebel-held cities like Donetsk, but were preparing to free them from the grip of militias. The government says its army has encircled Donetsk, but there were reports of setbacks, including desertions and retreats along the Russian border.

The Organization for Security and Cooperation in Europe said Monday evening that its observer mission had negotiated a humanitarian corridor into Russia for 437 Ukrainian soldiers who were encircled by rebel forces. The 72nd Mechanized Infantry Brigade had been "surrounded by separatists and left without ammunition, fuel and food," the report said.

Some Russian news outlets said the soldiers had defected to Russia and carried interviews with a few soldiers marveling at the warm reception they had received. But a spokesman for the government in Kiev, Andriy Lysenko, said that by Tuesday evening, 195 of the soldiers had returned to Ukraine and the rest were expected to do so.

Read MoreRussia flexes military muscle along Ukraine border

At the Central Officers' House of the Ukrainian armed forces in Kiev, dozens of wives, mothers and sisters of soldiers from the southern Ukrainian city of Mykolaiv have gone to Kiev to petition the government. They say their relatives in the 79th Airborne Brigade have been encircled near the Russian border for weeks and are being shelled from the Russian side.

"My brother called me the other day, he was running, and he said, 'They're bombing us, they're bombing us from Russia,' " said Marina Bershadskaya, 35, who said her brother Sergey drove a supply truck to the brigade and then was stuck there when the unit was encircled. Russia has repeatedly denied shelling across the border.

—By Neil MacFarquhar and Andrew Roth, The New York Times

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