The meeting on Tuesday in the Kremlin comes two days after the European Union suspended talks on an association deal with Ukraine that would have moved the country further into the European fold and away from Moscow's sway.

In opening comments broadcast on television, Yanukovych said he hoped both sides would agree on lower gas prices for the Ukraine.

Russian President Vladimir Putin said he hoped for a breakthrough in "sensitive issues" for both sides.

Anti-government protesters have threatened huge rallies in the Ukrainian capital, Kyiv, if the two leaders sign any deal prejudicing Ukraine's chances of moving closer to Europe.

Yanukovych last month abruptly decided to break off plans to put his signature to the trade and investment pact with the EU, triggering the largest demonstrations the country has seen since the 2004 Orange Revolution.

Loan in the offing

In Moscow, the Ukrainian president is reportedly hoping to win a multi-billion-dollar loan from Russia. Critics view the possible loan as a reward from Putin for not signing the EU deal.

Russia's Finance Ministry has confirmed that talks on a loan were under way.

The meeting is also expected to see the signing of an agreement for cheaper Russian natural gas shipments.

But demonstrators fear that the talks in Moscow may move Ukraine toward membership in a Russian-led customs union that Putin intends as a rival to the EU. The Ukrainian government said it did not intend to enter this customs union on Tuesday.

'Propaganda campaign'

The EU has accused Moscow of using economic threats and false information to woo Ukraine away from the EU deal.

On Monday, Swedish Foreign Minister Carl Bildt spoke of a propaganda campaign waged by Russia "based on misinformation and sometimes outright lies."

His Russian counterpart, Sergei Lavrov, in his turned criticized what he called "external intervention" in Ukraine.

tj/msh (Reuters, AFP)