Schröder told journalists that he didn't believe the investigation of Russian oil giant Yukos on tax evasion charges was a sign of politicians trying to exert illegal pressure on the justice system.

"It's not an unusual procedure that a state wants to collect taxes," Schröder said, according to a spokesman.

Some foreign investors fear the arrest of the company's former head, Mikhail Khodorkovsky, which caused the Russian stock market to tumble, was politically motivated.

On Wednesday, bailiffs moved in on the Yukos main offices after a midnight deadline passed for the company to pay a $3.4 billion (€2.7 billion) tax bill from 2000. The move is likely to force the company into bankruptcy.

Schröder: Germans confident about Russia

But Schröder said Putin's economic reforms had strengthened confidence among German business leaders to invest in Russia.

"I think this reform activity has led to the fact that the trust in business circles in Germany regarding the economic stability and the political stability in Russia is quite high," Schröder said.

The chancellor is travelling with the chief executive officers of several top German companies: Siemens, Deutsche Bank, Ruhrgas and Lufthansa.

Trade between Russia and Germany amounted to $18 billion last year, according to Russian news agency ITAR-Tass.

New bilateral projects announced

The leaders also used the meeting to highlight a $3.1 billion project between Russia's state-owned Gazprom concern and German energy giant E.On to build a natural gas pipeline under the Baltic Sea.

German retailer Rewe also announced a $500 million agreement with Russia's Marta group to set up a new supermarket chain over the next three to five years, The Associated Press reported.