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(Adds Obama announcing new measures)
* European officials agree sanctions
* U.S. expands measures against Ukraine
* International experts unable to get to crash site again
* Ukraine accuses Russia of cross-border shelling
By Justyna Pawlak and Eric Beech
BRUSSELS/WASHINGTON, July 29 (Reuters) - The European Unionand the United States on Tuesday announced further sanctionsagainst Russia, targeting its energy, banking and defencesectors in the strongest international action yet over Moscow'ssupport for rebels in eastern Ukraine.
The measures mark the start of a new phase in the biggestconfrontation between Moscow and the West since the Cold War,which worsened dramatically after the downing of Malaysianflight MH17 over rebel-held territory on July 17 by what Westerncountries say was a Russian-supplied missile.
"If Russia continues on this current path, the costs onRussia will continue to grow," President Barack Obama said inWashington.
"Russia's actions in Ukraine and the sanctions that we'vealready imposed have made a weak Russian economy even weaker,"he said.
In Brussels, diplomats said ambassadors from the 28-memberEuropean bloc agreed to restrictions on trade of equipment forthe oil and defence sectors, and "dual use" technology with bothdefence and civilian purposes. Russia's state run banks would bebarred from raising funds in European capital markets. Themeasures would be reviewed in three months.
German Chancellor Angela Merkel, who had been reluctant tostep up sanctions before the crash because of her country'strade links with Russia, said the latest EU measures were"unavoidable".
Previously Europe had imposed sanctions only on individualsand organisations accused of direct involvement in threateningUkraine, and had shied away from wider "sectoral sanctions"designed to damage its biggest energy supplier.
The new measures were coordinated with Washington in thehope that Russian President Vladimir Putin will back down from amonths-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, despitethe international condemnation following the downing of theairliner, Western countries say the Kremlin has stepped upsupport for separatists by sending them more heavy weaponry.
Moscow denies it is arming the rebels, protestations thatare ridiculed in the West.
On the ground on Tuesday, intense fighting betweengovernment troops and pro-Russian rebels killed dozens ofcivilians, soldiers and rebels over the past 24 hours, as Kievpressed on with an offensive to defeat the Moscow-backed revolt.
Shells hit the centre of Donetsk, a city with a pre-warpopulation of nearly a million people where residents fear theywill be trapped on a battlefield between advancing Ukrainiantroops and Russian-backed rebels who have vowed to make a stand.
Ukrainian forces have been pushing rebel units back towardstheir two main urban strongholds of Donetsk and Luhansk and havesought to encircle them in several places.
The government says its forces have retaken several villagesin the rolling countryside near where the airliner crashed,killing all 298 passengers, most of them Dutch.
"DEATH ROW"
In Donetsk, the body of a dead man lay in rubble behind abadly damaged 10-storey residential building close to the citycentre, hit by shelling. Rebels at the scene placed body partson a nylon sheet and carried it on a stretcher to a green van.
"There, that's their 'separatists'. That's their 'rebelcommander'," said a distressed woman in her 60s, gesturingtowards the body. "They are killing neighbours. They are killingpeople, 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 any more!" shesaid. "I am leaving! I don't know where!"
Donetsk officials said two people were killed in theshelling of the city.
Municipal officials said up to 17 people, includingchildren, were killed in fighting on Monday evening in the townof Horlivka, a rebel stronghold north of Donetsk that saw fiercebattles between the rival forces in the last few days.
In the city of Luhansk, officials said five civilians werekilled when shelling hit a retirement home.
"The enemy is throwing everything it has into the battle tocomplete encirclement of the DNR," Igor Strelkov, a Muscoviterebel commander, told journalists in Donetsk on Monday evening,referring to the self-proclaimed "Donetsk People's Republic".
A rebel source in Donetsk said reinforcements includingmilitary equipment and fighters had arrived across the borderfrom 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 andmilitary 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 downaccidentally by rebels using a Russian missile.
BANKING, TECHNOLOGY, ARMS
Leaders of the United States and major European powersagreed in a teleconference on Monday to impose sanctions onRussia's banking, technology and arms sectors.
The U.S. Treasury imposed sanctions on more Russian banks,targeting VTB, the Bank of Moscow, and the Russian AgricultureBank, as well as the United Shipbuilding Corp.
Winning support from the EU for sanctions was the trickiertask, because the European bloc does more than 10 times as muchtrade with Russia as the United States does and its 28 memberstates must agree unanimously on any measures.
To mitigate the impact on Europe's own economy, the newsanctions will not affect previous contracts, which means Francewill be allowed to go ahead with delivery of a naval helicoptercarrier it has already sold to Russia. Russia's oil industry hasbeen targeted but its natural gas, which powers Europeanindustry and lights its cities, has been spared.
Russia is the world's biggest exporter of natural gas andsecond biggest exporter of oil.
Still, some European countries and companies will face realpain. British energy giant BP, the biggest foreigninvestor in Russia with a near 20 percent stake in Russia'sbiggest oil company Rosneft, complained its businesscould be hurt.
London's financial services hub could face disproportionateharm from measures against Russian banks. German manufacturingfirms could lose customers. European banks and other creditorsthat are owed money by Russians may face a greater risk thatclients will have trouble refinancing or repaying their loans.
"These sanctions are harder than anything we have ever hadbefore," said James Nixey of British think tank Chatham House."It will hurt a little bit but it's a down payment on the futuresecurity of Europe. It's a question of Western credibility."
Meanwhile on the ground, fighting has only intensified sincethe air crash, with Ukrainian government forces trying to presson with an offensive that saw them push rebels out of theirbastion of Slaviansk at the start of the month.
Rebels who retreated from Slaviansk to Donetsk say they willmake a stand inside the city. Fighting has also intensified intowns and villages near the border, where the government aims toblock rebel reinforcements and arms shipments from Russia.
Ukraine military spokesman Lysenko said 10 Ukrainiansoldiers were killed over the last 24 hours. Rebel commanderStrelkov said his side had lost 30 fighters killed and wounded.
Plans to open a humanitarian corridor in Luhansk to allowresidents to flee the fighting failed. The United Nations saysmore than 100,000 people have already fled the east so far.
Violence in the region also frustrated internationalexperts' efforts to access the plane crash site for a third day.A Dutch police mission said it abandoned plans to travel thereon Tuesday because of fighting along the route.
Fighting has impeded recovery of some of the remains fromflight MH17 and made it impossible to reach the site toinvestigate the cause of the crash. Kiev and the rebels accuseeach other of fighting in the area to keep inspectors away. (Additional reporting by Natalia Zinets and Gabriela Baczynskain Kiev, Barbara Lewis, Julia Fioretti and Tom Koerkemeier inBrussels and Anthony Deutsch in Amsterdam; Writing by PeterGraff; Editing by Giles Elgood)
