No terms decided

Sergei Shoigu, Russian emergency situations minister, said: "We are still discussing projects in which this loan could be invested.

"The talks are going well and I hope we will reach the decision before the end of the day, and you will learn about it."

A high-level Serbian government official, speaking anonymously, said no terms had been decided.

"We have only formed a negotiating team, but talks have not started yet," said the official.

Belgrade wants to use $520 million of the loan to help cover part of its 2010 budget gap, which it needs to keep within 3.5 per cent of GDP to meet IMF requirements.

National flags

Earlier, Tadic welcomed Medvedev at a ceremony against a backdrop of the two national flags, similar white-blue-red tricolours, before they went into the Palace Serbia, a drab communist-era government compound, to hold their talks.

Backing Serbia's rejection of Kosovo's independence during his visit, Medvedev said: "Russia will always support Serbia in defending its sovereignty and territorial integrity."

Vuk Jeremic, Serbia's foreign minister, described Medvedev visit as "a historical day".

"All Western Balkan countries are on track to the EU membership, and only one, Serbia, has special ties with Russia, which makes our country exceptional and stronger," Jeremic said.

Medvedev is later scheduled to pay tribute to Soviet soldiers who fell in the liberation of Belgrade, completed 65 years ago.

Infrastructure projects

Belgrade plans to spend the rest of the loan on infrastructure as it tries to kick-start economic activity during the global downturn with road and rail construction.

Russia and Serbia share a common Orthodox Christian and Slavic heritage, but the Kremlin has driven hard bargains in recent energy deals with Belgrade and bilateral trade has tumbled so far this year.

Serbia has attracted almost $12bn in foreign direct investments since 2003, but Russia's contribution has been modest, with the country ranking 19th in the list of investors.

Bilateral trade totalled $4bn in 2008, but it fell 47 per cent in the first eight months of the year, according to Russian government data.

Trade turnover

Russian exports to Serbia made up 86 per cent of 2008 bilateral trade turnover.

Medvedev led a Russian delegation to sign a major energy deal with Serbia last year when he was a deputy prime minister.

Under the deal, Russia's Gazprom said it would develop an arm of the South Stream gas pipeline, allowing Russia to bypass Ukraine via Turkey, Bulgaria and Serbia.

Moscow and Kiev have had a number of disputes about gas which have sometimes affected supplies to other countries.