By Richard Balmforth and Alissa de Carbonnel
KIEV/MOSCOW (Reuters) - Pro-Russian separatists ambushed Ukrainian troops on Tuesday, killing seven in the heaviest loss of life for government forces in a single clash since Kiev sent soldiers to put down a rebellion in the country's east.
With the uprising and Russia's annexation of Crimea poisoning East-West relations, Moscow retaliated against U.S. sanctions by hitting aerospace projects, including refusing to extend the life of the International Space Station, a showcase of post-Cold War cooperation.
In Kiev, Ukraine's defense ministry and state security service said the troops were killed and seven others wounded when their armored column was ambushed near the town of Kramatorsk, one of several hot spots in the largely Russian-speaking east where the army has had scant success against the rebels.
About 30 rebels, who had taken cover among bushes along a river, attacked with grenade-launchers and automatic weapons near a village 20 km (12 miles) from Kramatorsk, the ministry said in a statement on its website.
"In all, as a result of the prolonged fighting, six members of the armed forces were killed. Eight soldiers were wounded, one of them seriously," it said. The state security service (SBU) said later that the seriously wounded soldier had died while being taken to hospital.
Rebel leaders held referendums in two eastern regions on Sunday which they said backed self-rule overwhelmingly. While Kiev and the West denounced the votes as illegal, the rebels called on Monday for their regions to become part of Russia. Moscow has stopped short of endorsing their bid for annexation.
Before the Kramatorsk incident, Defence Minister Mykhailo Koval said a total of nine servicemen had been killed so far in the army's "anti-terrorist" operation, which has been directed mainly against rebels in the towns of Slaviansk and Mariupol.
The dead included five air crew, Koval said. They died when their helicopters were downed by separatist fire.
Rebels have also suffered losses in the uprising, which began with the seizure of public buildings in eastern towns and cities. Many of the separatists hope to follow Crimea, which voted for union with Russia before its formal annexation in March.
The United States says Russia is backing the rebels while the Kremlin accuses Washington of having helped protesters to topple pro-Moscow Ukrainian President Viktor Yanukovich in February.
In the worst East-West crisis since the 1991 collapse of the Soviet Union, Washington and the European Union have slapped sanctions on a limited number of Russians and pro-Russian Ukrainians, and some small firms. Washington has also said it would deny export licenses for high-technology items that could help the Russian military.
Moscow retaliated on Tuesday, casting doubt on the long-term future of the International Space Station, a $100 billion, 15 nation project which was supposed to end the space race of the Cold War era.
Deputy Prime Minister Dmitry Rogozin said Moscow would reject a U.S. request to prolong the orbiting station's use beyond 2020. It would also bar Washington from using Russian-made rocket engines to launch military satellites.
"We are very concerned about continuing to develop high-tech projects with such an unreliable partner as the United States, which politicizes everything," Rogozin told a news conference.
Washington wants to keep the space station in use until at least 2024. But since the end of the U.S. Space Shuttle program, Russia's Soyuz spacecraft have been the only way to get there.
The U.S. space agency NASA is working with companies to develop space taxis with the goal of restoring U.S. transport to the station by 2017. The United States currently pays Russia more than $60 million per person to fly its astronauts up.
Moscow's response would affect NK-33 and RD-180 rocket engines which Russia supplies to the United States. "We are ready to deliver these engines but on one condition that they will not be used to launch military satellites," Rogozin said.
RD-180 engines are used to boost Atlas 5 rockets made by United Launch Alliance, a partnership of Lockheed Martin and Boeing that holds a virtual monopoly on launching U.S. military satellites.
ULA said it was not yet aware of any restrictions and hoped talks would resolve any that did arise. It added that it can use other launch vehicles and has a two-year supply of engines.
Rogozin said Russia would also suspend operation of GPS satellite navigation system sites on its territory from June, unless an agreement could be reached by September under which similar sites could be opened in the United States for Russia's own system, Glonass.
"SANCTIONS ARE WORKING"
Investors have shifted large sums out of Russia since the crisis erupted, and U.S. Assistant Secretary of State Victoria Nuland said the Western sanctions were having an effect.
"We've seen the ruble devalue against the dollar by some 20 percent, we've seen the Russian bond rating drop in recent months to just above junk, we've seen the IMF declare that Russia is on the verge of recession ... So sanctions are hurting," she told a news conference on a visit to Estonia.
The standoff is straining business ties broadly. Around a dozen chief executives and chairmen of major U.S. and European corporations have withdrawn from President Vladimir Putin's flagship economic conference on May 22-24. One firm said the decision to stay away was because of the political tensions while most declined to give a reason.
Germany's foreign minister Frank-Walter Steinmeier expressed hope on a visit to Kiev that "round table" talks between politicians and civil groups this week would help to disarm the separatists and improve the atmosphere for presidential elections due later this month.
Chancellor Angela Merkel, speaking in Berlin, said the more representative these talks are, the better. However, she added: "Clearly, people are only welcome if they can credibly show that they are prepared to reach their goals without violence."
Kiev's handling of the crisis in the east caused angry scenes in the Ukrainian parliament on Tuesday when deputies of the formerly ruling Regions party and their communist allies attacked the government for sending in the army - a move they said had alienated Russian-speakers.
"The anti-terrorist operation has turned into a terrorist operation, organized by the authorities against their own people," said Regions deputy Mykola Levchenko.
When communist faction leader Petro Symonenko took a similar line, acting president Oleksander Turchinov, who is also speaker, burst out: "Liars have no place in parliament. Sit down."
(Additional reporting by Irene Klotz, Gabriela Baczynska, Megan Davies and Steve Gutterman in Moscow, David Mardiste in Tallinn,
Stephen Brown and Andreas Rinke in Berlin, Tom Bergin in London; Writing by David Stamp; Editing by Peter Graff)