The EU has reached an agreement on the first broad economic sanctions on Russia over its role in Ukraine, diplomats said, marking a new phase in the biggest confrontation with Moscow since the Cold War.

The measures agreed on Tuesday would shut state-owned Russian banks out of European markets and target the defence sector and sensitive technologies, including oil, but exclude the vital natural gas sector, on which Europe is heavily dependent.

The EU's president, Herman Van Rompuy, said the sanctions were intended to be "a strong warning" but could be reversed if Moscow changed course in Ukraine.

The new sanctions were expected to be finalised on Wednesday, according to diplomats meeting in Belgium.

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The US secretary of state, John Kerry, also announced on Tuesday that the US was also drawing up fresh sanctions against Russia.

EU ambassadors clinched their agreement as intense fighting between Ukrainian troops and pro-Russian rebels in eastern Ukraine killed dozens of civilians, soldiers and rebels.

The heavy fighting also prevented independent investigators to access the crash site of MH17.

New casualties

Officials said 17 people, including five children, were killed in fighting on Monday evening in the town of Horlivka, one of several spots that have seen fierce battles between the rival forces in the last few days.

In the city of Luhansk, officials said five civilians were killed when bombs hit a retirement home.

"The enemy is throwing everything it has into the battle to complete encirclement of the DNR," Igor Strelkov, rebel commander, told the Reuters news agency in Donetsk on Monday evening, referring to the self-proclaimed "Donetsk People's Republic".

"We were astonished by how much armour they threw into this battle," said Strelkov, a Russian national, sporting a
camouflage T-shirt and trousers.

Ukraine fighting blocks access to MH17 crash site

A rebel source in Donetsk said reinforcements including military equipment and fighters had crossed the nearby border with Russia into Ukraine. 

Rebel leaders insist publicly that Russia is not supplying them. Russia also denies Western accusations that it is
supporting the rebellion with arms and troops.

The rebels say 7,400 Ukrainian soldiers have been killed or injured since Kiev launched what it calls its "anti-terrorist" operation against separatists in the east in early May. Ukraine puts the toll at fewer than 1,500.

A humanitarian corridor was due to open in Luhansk for six hours on Tuesday to allow residents to flee the fighting, but officials said they could not guarantee full safety. The UN says more than 100,000 people have already fled Ukraine's tumultuous east.

Source: Al Jazeera and agencies