RUSSIA RECOGNIZES GEORGIA REBEL REGIONS

By Denis Dyomkin Reuters -SOCHI, Russia (Reuters) - Russia recognised two rebel regions of Georgia as independent states on Tuesday, escalating tension in the volatile Caucasus and putting Moscow on a collision course with the West.

Flanked by a Russian flag and a presidential banner, President Dmitry Medvedev said Tbilisi's desire to seize back Abkhazia and South Ossetia by force had killed all hopes for their peaceful co-existence in one state with Georgia.

"(Georgian President Mikheil) Saakashvili chose genocide to solve his political tasks," Medvedev declared in a statement broadcast from his summer residence in the resort of Sochi.

"The peoples of South Ossetia and Abkhazia have more than once spoken in referenda supporting the independence of their republics. We understand that after what had happened ... they have the right to decide their fate themselves.

Saakashvili, after a meeting of his National Security Council, branded the move "completely illegal".

"This decision is completely illegal and has no legal basis," he said in an address to the nation.

Russian tanks and troops are still occupying parts of Georgia after a brief war over South Ossetia earlier this month -- the first time Moscow has sent troops into another country since the end of the Soviet Union in 1991.

In an interview with CNN Medvedev later said Russia would help defend Abkhazia and South Ossetia if they were attacked, and said Moscow had no plans to intervene militarily in other conflicts in former Soviet states.

"As far as involvement in other conflicts is concerned, we naturally are not going to do this," Medvedev told CNN. "But Russia is a state which has to ensure its interests along the whole length of its border, this is absolutely clear."

The United States, NATO, the European Union and European powers swiftly attacked Moscow's recognition move.

U.S. Secretary of State Condoleezza Rice described it as "regrettable", German Chancellor Angela Merkel termed it "absolutely unacceptable" and Britain "categorically rejected" the decision.

EU president France joined in condemnation of the Russian move. "It (the EU) calls for a political solution to the conflicts in Georgia. It will examine the consequences of Russia's decision from this point of view," President Nicolas Sarkozy's office said in a statement.

The value of Russian assets tumbled as tension grew between Moscow and the West. Ratings agencies foresaw a knock-on effect across eastern Europe as far as Poland.

Russian stocks lost 4.2 percent, putting them down 31 percent so far this year. At one stage in the day they were down 6.1 percent and at their lowest since October 2006.
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