Ukrainian forces and pro-Russian separatists fought skirmishes near the Russian border today but there was no sign of the conflict widening after Kiev said it partially destroyed an armoured column that had crossed the border from Russia.
The report of the attack on the armoured column yesterday triggered a sell-off in the US dollar and European stocks, with markets fearful it could change the Ukraine conflict into an open confrontation between Moscow and western-backed Kiev.
But Moscow made no threat of retaliation, instead saying it was a "fantasy" that its armoured vehicles entered Ukraine, while in Washington the White House said it could not confirm that Russian vehicles had been attacked on Ukrainian soil.
On the ground, the conflict in eastern Ukraine returned today to the pattern it has been following for several weeks. Kiev said military equipment was entering from Russia, and the rebels said they had attacked Ukrainian troops.
A reporter in Donetsk, one of two rebel strongholds in the east, said the sound of explosions was audible in the city centre.
The Finnish president, Sauli Niinisto, was to arrive in Kiev later today for talks with Ukraine's president Petro Poroshenko aimed at finding a negotiated solution.
Mr Niinisto met Mr Putin in southern Russia yesterday and afterwards spoke of the possibility of a truce, although it was not immediately clear how that would happen.
The conflict in Ukraine has dragged relations between Russia and the west to their worst since the Cold War and set off a round of trade restrictions that are hurting struggling economies both in Russia and Europe.
The United Nations said this week that an estimated 2,086 people had died in the Ukraine conflict, with nearly 5,000 wounded.
A rebel Internet news outlet said today that separatist fighters had killed 30 members of a Ukrainian government battalion in fighting in Luhansk province, a rebel-held area of eastern Ukraine adjacent to the Russian border.
Rebels said two villages south of Donetsk, the other separatist stronghold, were bombed overnight with mortars.
Rebel news outlet Novorossiya also said two neighbourhoods of the city itself had been hit with artillery.
A Ukrainian defence ministry spokesman, Andriy Lysenko, contradicted the rebel assertions. He said three Ukrainian servicemen had been killed over the past 24 hours, and denied Kiev's forces were firing artillery on Donetsk.
In the past few hours Ukrainian security forces had spotted Russian drones and a helicopter crossing illegally into Ukraine’s airspace, Mr Lysenko told a news briefing.
He declined to give further details on the incident yesterday in which Kiev said it attacked armoured vehicles that arrived from Russia. Ukraine has not made clear if the vehicles were manned by Russian soldiers or separatist irregulars.
Ukraine and its Western allies say Russia broke international law by annexing Ukraine’s Crimea region earlier this year, and that Moscow is now arming the Ukrainian separatists. Russia accuses Kiev of waging a criminal war against Russian-speaking civilians in the east. Both sides reject the allegations.
The momentum in the conflict on the ground is with the Ukrainian forces.
They have pushed the separatists out of large swathes of territory and have now nearly encircled them in Donetsk and Luhansk.
Kiev says it now controls the road linking the two cities.
Russia says the Ukrainian offensive is causing a humanitarian catastrophe for the civilian population in the two cities. It accuses Kiev’s forces of indiscriminately using heavy weapons in residential areas, an allegation Ukraine denies.
In the past seven days, three of the most senior rebel leaders have been removed from their posts, pointing to mounting disagreement over how to turn the tide of the fighting back in their favour.
Mr Lysenko, the Ukrainian military spokesman, said he had reports of rebel fighters abandoning their posts in Luhansk, and preparing to leave Donetsk and seek safe haven in Russia.
“A mood of panic is spreading and rebels are trying to leave through the small gaps that remain,” he said.
The Reuters reporter in Donetsk said that last night the separatist administration was still operating and there had been no sign of preparations for a pull-out.
Alexander Zakharchenko, prime minister of the self-proclaimed Donetsk People's Republic, said reinforcements were on their way.