(Reuters) - Western allies announced sweeping new sanctions against Moscow on Saturday, including kicking key Russian banks off the main global payments system, as a defiant President Volodymyr Zelenskiy said Ukrainian forces were repelling Russian troops advancing on Kyiv.
Seeking to ratchet up economic punishment for Russian President Vladimir Putin over his invasion of Ukraine, the United States and its European partners also said they would impose restrictions on Russia's central bank to limit its ability to support the rouble and finance his war effort.
The announcement came as fighting continued across Ukraine. Russian artillery and cruise missiles have pounded the capital and other cities. Reuters witnesses in Kyiv reported occasional blasts and gunfire in the city on Saturday evening, but it was not clear exactly where it was coming from.
Putin launched a special military operation on Thursday, ignoring weeks of Western warnings and saying the "neo-Nazis" ruling Ukraine threatened Russia's security - a charge Kyiv and Western governments say is baseless propaganda.
Russia's assault is the biggest on a European state since World War Two and threatens to upend the continent's post-Cold War order.
A U.S. defense official said Ukraine's forces were putting up "very determined resistance" to the three-pronged Russian advance that has sent hundreds of thousands of Ukrainians fleeing westwards, clogging major highways and railway lines.
"As Russian forces unleash their assault on Kyiv and other Ukrainian cities, we are resolved to continue imposing costs on Russia that will further isolate Russia from the international financial system and our economies," the Western allies said as they escalated their punitive response.
"We will implement these measures within the coming days," according to a joint statement from the United States, France, Germany, Canada, Italy, Britain, and the European Commission.
After initially shying away from such a move largely because of concern about the impact on their own economies, the allies said they committed to "ensuring that selected Russian banks are removed from the SWIFT messaging system." They did not name the banks that would be expelled but an EU diplomat said some 70% of the Russian banking market would be affected.
The move - which the French finance minister had earlier called a "financial nuclear weapon" because of the damage it would inflict on the Russian economy - deals a blow to Russia's trade and makes it harder for its companies to do business.
SWIFT, or the "Society for Worldwide Interbank Financial Telecommunication", is a secure messaging network that facilitates rapid cross-border payments, making it a crucial mechanism for international trade.
Sanctions on Russia's central bank could limit Putin's use of his more than $630 billion in international reserves, widely seen as insulating Russia from some economic harm.
The new measures will prevent Russia from "using its war chest," according to Ursula von der Leyen, president of the European Commission, the European Union's executive.
'THE FIGHTING GOES ON'
Clay Lowery, executive vice president for the Institute of International Finance, said the new sanctions "will most likely exacerbate ongoing bank runs and dollarization, causing a sharp sell-off, and a drain on reserves."
But because Russia's large banks are deeply integrated into the global financial system, new sanctions imposed on them, such as cutting them off from SWIFT, could have a spillover effect, hurting trading partners in Europe and elsewhere.
Ukrainian Prime Minister Denys Shmygal said in a Twitter (NYSE:TWTR) post early on Sunday: "Thanks to our friends ... for the commitment to remove several Russian banks from SWIFT."
The Kremlin said its troops were advancing again "in all directions" after Putin ordered a pause on Friday. Ukraine's government said there had been no pause.
"We have withstood and are successfully repelling enemy attacks. The fighting goes on," Zelenskiy said in a video message from the streets of Kyiv posted on his social media.
The crisis has galvanized the NATO Western military alliance, which has announced a series of moves to reinforce its eastern flank. While NATO has said it will not deploy troops to Ukraine, a string of countries are sending military aid.
U.S. President Joe Biden approved the release of up to $350 million worth of weapons from U.S. stocks, while Germany, in a shift from its long-standing policy of not exporting weapons to war zones, said it would send anti-tank weapons and surface-to-air missiles.
Amid a barrage of cyberattacks blamed on Moscow, Ukrainian Vice Prime Minister Mykhailo Fedorov said his government will create an "IT army" to fight back. Kyiv already has quietly called on its hacker underground to help against Russian forces, Reuters exclusively reported.
Fedorov also called on Saturday on SpaceX billionaire Elon Musk to provide Ukraine with the company's Starlink satellite broadband service. Musk responded on Twitter: "Starlink service is now active in Ukraine. More terminals en route."
Ukraine, a democratic nation of 44 million people, won independence from Moscow in 1991 after the fall of the Soviet Union and wants to join NATO and the EU, goals Russia opposes.
Putin has said he must eliminate what he calls a serious threat to his country from its smaller neighbor, accusing it of genocide against Russian-speakers in eastern Ukraine - something Kyiv and its Western allies reject as a lie.
A Ukrainian presidential adviser said about 3,500 Russian soldiers had been killed or wounded. Western officials have also said intelligence showed Russia suffering higher casualties than expected and its advance slowing.
Russia has not released casualty figures and it was impossible to verify tolls or the precise picture on the ground.}
"We know that (Russian forces) have not made the progress that they wanted to make, particularly in the north. They have been frustrated by what they have seen is a very determined resistance," the U.S. official said, without providing evidence.
Kyiv's mayor Vitali Klitschko said there was no major Russian military presence in the capital but that saboteur groups were active. Klitschko, a former world heavyweight boxing champion, later told Germany's Bild tabloid the city was "nearly encircled".
Authorities have handed thousands of assault rifles to residents and told citizens to make petrol bombs.
At least 198 Ukrainians, including three children, have been killed and 1,115 people wounded so far, Interfax quoted Ukraine's Health Ministry as saying.
Interfax later cited the regional administration in Donetsk, eastern Ukraine, saying 17 civilians had been killed and 73 wounded by Russian shelling.
Moscow says it is taking care not to hit civilian sites.
U.N. refugee chief Filippo Grandi said more than 150,000 Ukrainian refugees have crossed into neighboring countries - half to Poland and many to Hungary, Moldova, and Romania.
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Russia's Defense Ministry said its forces had captured Melitopol, a city of 150,000 in southeastern Ukraine. Ukrainian officials did not comment and Britain cast doubt on the report.
If confirmed, it would be the first significant population center the Russians have seized.
Several European countries, including Russia's Baltic neighbors Lithuania and Latvia, said they were closing their airspace to Russian airliners. Germany said it was preparing to follow suit.
