* EU will expand scope of asset freezes-draft
* Some EU aid programmes set to be suspended
* Germany says Russia failed to meet commitments (Adds analyst quotes, German comment)
By Barbara Lewis and Adrian Croft
BRUSSELS, July 16 (Reuters) - European Union leaders want to block loans for new projects in Russia by two multilateral lenders and broaden the scope of other sanctions in response to Moscow's actions in Ukraine, according to a draft statement seen by Reuters.
The EU leaders, who meet in Brussels later on Wednesday, will step up sanctions because pro-Russian rebels in eastern Ukraine have not met their demands to end the violence there.
The 28-nation EU has been under strong pressure from the United States and Ukraine to take a hard line against Russia although many EU countries are worried about putting their strong trade and energy ties with Russia at risk.
The EU leaders will ask the bloc's bank, the European Investment Bank (EIB), to suspend financing of new public sector projects in Russia, the draft statement said.
EU countries will work together within the European Bank for Reconstruction and Development (EBRD) to suspend EBRD financing of new projects in Russia, it said.
Russia is one of 64 countries that are shareholders of the EBRD but, if it wins the support of other pro-Western countries, the EU should be able to block loans for new Russian projects.
Russia has traditionally been the biggest recipient of the London-based EBRD's funds - the bank lent 1.8 billion euros ($2.44 billion) there last year.
The EIB typically lends around 300-500 million euros a year to public sector projects in Russia.
Both banks declined comment.
The EU will broaden the scope of asset freezes to target companies and other organisations "that are supporting materially or financially actions undermining or threatening Ukraine's sovereignty, territorial integrity and independence," according to the draft statement, which could still be changed after the leaders' discussions.
If broadly interpreted, this change could have wide ramifications, potentially allowing the EU to target a range of Ukrainian or Russian companies.
GERMAN CRITICISM
The German government criticised Russia on Wednesday for failing to meet commitments on de-escalating the violence in Ukraine and said the EU remained ready to impose further sanctions on Russia if necessary.
The EU has so far imposed asset freezes on 72 people and two energy companies in Ukraine's Crimea region, which was annexed by Moscow earlier this year.
"EBRD and EIB assistance is useful for Russia as it targets good projects that are aimed at modernising the economy and improving the investment climate," said Tatiana Orlova, a strategist at RBS in London.
"But the scope of those projects is relatively modest and Russia is not dependent on these banks' assistance," she said. "Unless we see names of important companies, markets won't really react too much."
The proposed new EU measures still fall short of the hard-hitting sanctions on sectors of the Russian economy that the United States and the Ukrainian government have called for.
Ukrainian President Petro Poroshenko urged the EU to take tough action against Russia in a phone call with European Council President Herman Van Rompuy on Tuesday during which Poroshenko presented new evidence of rebel fighters crossing into Ukraine from Russia along with heavy military equipment and arms.
The United States has mounted a diplomatic campaign over the last few days to persuade the EU to sign up to tougher sanctions, according to a European diplomat.
That has included a meeting at the White House between U.S. officials and EU ambassadors and calls by President Barack Obama to European counterparts, the diplomat said.
Some EU governments are wary of potential retaliation from Russia, the bloc's biggest energy supplier, if the EU imposes economic sanctions.
EU AID
The EU leaders will also ask the EU's executive Commission to look into suspending EU bilateral and regional cooperation programmes that benefit Russia. Projects dealing exclusively with civil society would be excluded, the draft said.
Some 450 million euros of EU funding are set to flow to Russia between 2014 and 2020 under various cooperation programmes, according to the EU Commission.
Under different scenarios for reducing cooperation with Russia set out by the Commission, EU funding could be cut to 275 million euros over the period or to 98 million euros if the EU decides on tougher action.
Areas that could be affected include EU aid for Russian higher education institutions or cutting Russia out of EU-funded projects in the Black Sea region.
The EU leaders will also ask officials to draw up proposals for further measures to restrict investment in Crimea, whose annexation by Russia is not recognised by the EU.
The leaders will say they expect international financial institutions to refuse to finance any project that recognises the annexation of Crimea, according to the draft. ($1 = 0.7391 Euros) (Additional reporting by Justyna Pawlak, Jan Strupczewski, Martin Santa and Paul Taylor in Brussels; Marc Jones and Sujata Rao in London; Alexandra Hudson and Noah Barkin in Berlin)
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