* Kerry and Lavrov to meet in Paris
* Russian forces in charge of Ukraine's Crimea region
* EU could decide sanctions Thursday if no de-escalation -France
* Putin says Russian reserves right to use force
* Tensions remain high, West mulls sanctions
By John Irish and Timothy Heritage
PARIS/KIEV, March 5 (Reuters) - The United States and Russia will hold talks on easing East-West tension over Ukraine on Wednesday as the West steps up efforts to persuade Moscow to pull its forces back to base in Crimea and avert the risk of a war.
U.S. Secretary of State John Kerry and Russian Foreign Minister Sergei Lavrov will meet face-to-face for the first time since the crisis escalated, after a conference in Paris attended by all five permanent members of the U.N. Security Council.
NATO and Russia will hold parallel talks in Brussels amid concerns that a standoff between Russian and Ukrainian soldiers in Crimea could still spark violence, or that Moscow could also intervene in Russian-speaking eastern Ukraine.
French Foreign Minister Laurent Fabius said European Union leaders meeting in Brussels on Thursday could decide on sanctions against Russia if there is no "de-escalation" by then.
President Vladimir Putin on Tuesday defended Russia's actions in Crimea, a strategic Black Sea peninsula that is part of Ukraine but used to be Russian territory, and said he would use force only as a last resort.
This eased market fears of a war over the former Soviet republic after sharp falls on Monday. The rouble was steady on Wednesday and Ukraine's hryvnia rose slightly against the U.S. dollar.
Russian forces remain in control of the region, however, and Putin gave no sign of pulling servicemen, based in Crimea as part of the Black Sea Fleet, back to base. Investors in Russian stocks were still worried about Ukraine, with the MICEX index down 1 percent on Wednesday in contrast to other stock markets.
Russian forces remain in control of the region and Putin gave no sign of pulling servicemen, based in Crimea as part of the Black Sea Fleet, back to base.
"What he wants above all is a new empire, like the USSR but called Russia," former Ukrainian President Viktor Yushchenko told France's Europe 1 radio.
In Washington, U.S. President Barack Obama acknowledged that Russia had legitimate interests in Ukraine but said that did not give Putin the right to intervene militarily.
"President Putin seems to have a different set of lawyers making a different set of interpretations," Obama said. "But I don't think that's fooling anybody."
A senior administration official said Obama spoke to German Chancellor Angela Merkel on Tuesday and discussed a potential resolution to the crisis. The Russian-speaking German leader has good relations with the German-speaking Putin, and Berlin is Russia's biggest economic partner.
The official said Obama, in his phone call with Putin last Saturday, had discussed what officials called an "off-ramp" to the crisis in which Russia would pull its forces in Crimea back to their bases and allow international monitors to ensure that the rights of ethnic Russians are protected.
The U.S. president will stay away from a G8 summit scheduled for Sochi, Russia, in June unless there is a Russian reversal in the Ukraine crisis, the official added.
G7 MAY MEET SOON
At his first news conference since the crisis began, Putin said on Tuesday that Russia reserved the right to use all options to protect compatriots who were living in "terror" in Ukraine but that force was not needed for now.
His comments, coupled with the end of Russian war games near Ukraine's borders, lifted Russian bonds and stock markets around the world after a panic sell-off on Monday.
In comments ridiculed by U.S. officials, Putin denied the Russian armed forces were directly engaged in the bloodless seizure of Crimea, saying the uniformed troops without national insignia were "local self-defence forces".
French President Francois Hollande became the latest Western leader to raise the possibility of sanctions if Putin does not step back and accept mediation. He set out a tougher public line than Merkel, who has avoided talk of sanctions so far.
"The role of France alongside Europe ... is to exert all necessary pressure, including a possible imposition of sanctions, to push for dialogue and seek a political solution to this crisis." Hollande told an annual dinner of France's Jewish community leaders late on Tuesday.
Putin earlier said Western sanctions under consideration against Russia would be counter-productive. A senior U.S. official said Washington was ready to impose them in days rather than weeks.
Canadian Prime Minister Stephen Harper said after speaking to Obama at the weekend that the Group of Seven leading industrialised nations were considering meeting in the near future, a move that would pointedly exclude Russia. The G7 became the G8 in 1998 when Russia was formally included.
Kerry, on his first visit to Kiev since the overthrow of Russian-backed President Viktor Yanukovich, accused Moscow of seeking a pretext to invade more of the country.
He said the United States was not seeking a confrontation and would prefer to see the situation managed through international institutions such as the Organisation for Security and Cooperation in Europe (OSCE).
He was expected to meet Lavrov, Hollande and British Foreign Secretary William Hague on the sidelines of a Paris conference on Lebanon, before holding private talks with the Russian minister later in the day in the French capital.
Ukraine's acting foreign minister, Andriy Deshchitsia, is also in Paris for talks with French officials and Kerry. It was not clear if he too would meet Lavrov.
The Feb. 22 ousting of Yanukovich after months of street protests in Kiev and Russia's seizure of control in Crimea have prompted the most serious confrontation between Moscow and the West since the end of the Cold War.
Western governments have been alarmed at the possibility that Russia may also move into eastern and southern Ukraine, home to many Russian speakers, which Putin did not rule out.
Lavrov told European Union foreign policy chief Catherine Ashton that an EU-brokered agreement signed by political leaders in Kiev on Feb. 21 should be the basis for stabilising the situation in Ukraine, his ministry said on Wednesday.
He said the agreement foresaw constitutional reform which would take into account the wishes of all regions in Ukraine. Russia says the deal was broken by the removal of Yanukovich.
TENSIONS IN CRIMEA
No major incidents were reported in Crimea overnight.
But in a sign of the fragility of the situation, a Russian soldier on Tuesday fired three volleys of shots over the heads of unarmed Ukrainian servicemen who marched bearing the Ukrainian flag towards their aircraft at a military airfield surrounded by Russian troops at Belbek, near Sevastopol.
After a standoff in which the two commanders shouted at each other and Russian soldiers levelled rifles and rocket-propelled grenade launchers at the Ukrainians, the incident was defused and the Ukrainians eventually dispersed. No one was hurt.
The Ukrainian border guard service said Russian navy ships had blocked both ends of the Kerch Strait between Crimea and Russia, but Ukraine's infrastructure ministry said the 4.5-km (2.7-mile) wide waterway was still open for civilian shipping.