* Helsinki says wants to open dialogue over Ukraine
* Putin has not hosted any EU leaders in Russia for months
* Finland a big casualty from tit-for-tat sanctions (Updates with European official in paragraph 8)
By Alexei Anishchuk
YALTA, Crimea, Aug 14 (Reuters) - Finland's president is to meet his Russian counterpart Vladimir Putin in southern Russia on Friday, but both governments played down prospects for any breakthrough in the crisis over Ukraine.
With tensions running high between Russia and the European Union, Putin has not hosted any bilateral meeting with an EU leader on Russian soil since February's Sochi Winter Olympics.
The meeting, at Putin's residence in Sochi, southern Russia, is a diplomatic balancing act for Helsinki.
Finland is one of the EU states hardest hit by trade embargoes that Moscow has imposed in retaliation for EU sanctions, yet it does not want to be seen as a weak link in the European front to pressure Putin over Ukraine.
The Finnish President, Sauli Niinisto, said his meeting would focus on finding a way to defuse tensions over Ukraine.
"I do not want to present myself as a great peace mediator," Niinisto told a news conference. "What we need are open communication channels. (This)... is a small step forward."
"We've been in contact with western partners, and I feel it is being understood that Finland in particular has all the reasons to be active in this issue. We have had understanding towards the meeting."
One European official, who spoke on condition of anonymity, said he had only been informed of the Finnish president's trip on Thursday morning.
Asked by Reuters about the planned visit, and whether it suggested cracks in EU unity over Ukraine, a European Commission representative declined to comment.
A Kremlin source, speaking on condition of anonymity, said that the agenda for the Sochi meeting would focus on bilateral issues, primarily trade.
The Finnish side had requested the meeting last week, soon after Russia imposed restrictions on the import of food products from many Western states, the source said.
The Finnish president was not coming as an intermediary between Russia and the West over Ukraine, the source said, and cautioned against expecting the talks would produce any kind of breakthrough in that conflict.
Russia is Finland's third-biggest export market. Finnish companies are major suppliers of milk and other dairy products to Russian supermarkets.
A survey on Thursday showed almost half of Finland's companies have been hurt by the sanctions Russia and the EU have imposed on each other.
The EU has imposed sanctions on individual Russians and the energy, finance and defence sectors to punish Moscow for its annexation of Ukraine's Crimean peninsula and what Western governments say is its backing for pro-Russian separatists in eastern Ukraine.
Russia denies arming the rebels or orchestrating the conflict. It says the authorities in Kiev, with backing from the West, are inflicting a humanitarian crisis on the mainly Russian-speaking population of eastern Ukraine. (Additional reporting by Jussi Rosendahl ansd Sakari Suoninen in Helsinki and Martin Santa in Brussels; Writing by Christian Lowe; Editing by Ralph Boulton)