* With Crimea lost to Russia, Ukraine takes step towards EU
* Trade benefits in future could bolster Ukrainian economy
* EU path for Ukraine not seen leading to membership
* Risk of retaliatory moves by Russia (Adds quotes from Ukrainian PM, French president, details)
By Adrian Croft and Justyna Pawlak
BRUSSELS, March 21 (Reuters) - The European Union and Ukraine signed a landmark political cooperation accord on Friday, committing to the same deal former president Viktor Yanukovich rejected last November, a decision that led to his overthrow.
Ukrainian Prime Minister Arseny Yatseniuk, EU presidents Herman Van Rompuy and Jose Manuel Barroso, and the leaders of the bloc's 28 nations signed the core chapters of the Association Agreement during an EU summit in Brussels.
Soon afterwards, Russian President Vladimir Putin signed legislation completing the process of absorbing Crimea into Russia, defying Western leaders who say the Black Sea peninsula remains part of Ukraine.
The deal commits Ukraine and the EU to closer political and economic cooperation, although its more substantial parts concerning free trade will be signed only after Ukraine has held a presidential election on May 25.
Van Rompuy, the European Council president, said the agreement would bring Ukraine and its 46 million people closer to the heart of Europe and a "European way of life".
"(This) recognises the aspirations of the people of Ukraine to live in a country governed by values, by democracy and the rule of law, where all citizens have a stake in national prosperity," he said.
Two sets of the documents were passed around the table for the EU's leaders and Yatseniuk to sign in a solemn atmosphere. Van Rompuy and Yatseniuk then shook hands and exchanged the documents to applause, witnesses said.
Yanukovich turned his back on signing the EU agreement last November in favour of closer ties with Moscow, triggering months of street protests that eventually led to his flight from the country. Soon afterwards, Russian forces occupied Crimea, a Russian-majority region in the far southeast of the country, drawing outrage and sanctions from the United States and EU.
Yatseniuk urged European leaders to move decisively to contain Putin with economic pressure or risk the conflict - the most bitter East-West confrontation since the Cold war - spilling elsewhere into Europe.
"The best way to contain Russia is to impose real economic leverage on them," he told reporters after the signing ceremony.
"I strongly believe ... the EU will speak in one single strong voice, defending the territorial integrity of Ukraine and protecting the EU itself because God knows what is the final destination, is it Ukraine or is it EU?"
On Thursday, EU leaders began preparations for economic sanctions if Russia expands its footprint in Ukraine, but failed to detail what measures the bloc could take.
Underscoring divisions in Europe, which have hampered its response to the crisis in Ukraine, French President Francois Hollande said late on Thursday that Kiev could count on tightening relations with the EU but not on membership.
"I have always considered that Ukraine should be associated with the EU. It couldn't aspire to be a member of the EU," he told reporters. Ukraine was part of the Moscow-dominated Soviet Union until 1991 and analysts say Putin considers Ukraine to be within Russia's historical sphere of influence.
Some European policymakers have pushed the EU to open its doors to countries in the east as an incentive to reform and resist Russian pressure on those states to shun Europe.
But many EU governments, wary of goading Russia with which they have had major commercial ties, are loath to so much as suggest Ukraine could one day join the bloc.
As well as the closer political ties, the European Commission has agreed to extend nearly 500 million euros ($689 million) worth of trade benefits to Ukraine, removing duties on a wide range of farm goods, textiles and other imports.
Once Ukraine has a new administration and signs a free-trade agreement with the European Union, it will have unfettered access to the EU's market of 500 million consumers.
That has the potential to strengthen Ukraine's shattered economy, but also runs the risk of provoking retaliatory steps from Russia, which has already imposed stricter customs checks on trade with Ukraine.
The other burden for Kiev is meeting the obligations that come with EU political association. These include instituting changes to the rule of law and justice in a country long plagued by corruption and repressive governance, and adopting business and environmental standards that will require hard work and long-term investment to meet.
Underlining Kiev's difficult relationship with Moscow, Russian Prime Minister Dmitry Medvedev said in a meeting with Putin on Friday that Ukraine owed Russia $16 billion, local news agencies reported.
($1 = 0.7255 Euros) (Additional reporting by Luke Baker; Editing by Mark Heinrich)