* OSCE team on way to negotiate hostage release
* Military observers held by separatists since Friday
* OSCE says doing everything it can (Adds OSCE comment, background)
BERLIN/VIENNA, April 26 (Reuters) - The Organisation for Security and Cooperation in Europe has dispatched a negotiating team to try to secure the release of OSCE observers being held by pro-Russian separatists in eastern Ukraine, a German government source said on Saturday.
"A negotiating team from the OSCE is on the way to the region," said the source, declining to give further details.
A spokeswoman for the OSCE in Vienna confirmed the team was on its way to the eastern city of Slaviansk, a flashpoint between the separatists and Ukrainian forces who are trying to regain control of the city.
"They are part of the larger OSCE family and of course we are doing everything we can," she said, adding that the OSCE had been in contact with "all sides" since late on Friday but had had no direct contact with the eight observers being held.
The monitors are part of a German-led military verification mission who went to Ukraine in early March at Ukraine's request. The armed pro-Russian separatists holding them have said they found a Ukrainian spy travelling with the party.
Russia said earlier it was doing what it could to resolve the situation, without giving details.
Russia and Ukraine are both members of the 57-nation OSCE. (Reporting by Sabine Siebold and Georgina Prodhan; Writing by Madeline Chambers; Editing by Victoria Bryan and Mark Trevelyan)