* Turkish forces bombard Syrian border town, fighting reported
* Standoff looms in northern Syrian town of Manbij
* Amid global criticism, Volkswagen shelves Turkey car plant
* Kurds say Syrian deployment is "emergency measure"
MANBIJ, Syria, Oct 15 (Reuters) - Turkey ignored U.S. sanctions and pressed on with its offensive in northern Syria on Tuesday, while the Russia-backed Syrian army roared into one of the most hotly contested cities abandoned by U.S. forces in Donald Trump's retreat.
Reuters journalists accompanied Syrian government forces who entered the centre of Manbij, a flashpoint where U.S. troops had previously conducted joint patrols with Turkey.
Russian and Syrian flags were flying from a building on the city outskirts, and from a convoy of military vehicles.
Russia's Interfax news agency, citing Moscow's Defence Ministry, said later that Syrian forces had taken control of an area of more than 1,000 square kilometres around Manbij. This included Tabqa military airfield, two hydroelectric power plants and several bridges across the Euphrates river, it said.
In Manbij, Syrian troops were manning joint checkpoints alongside regional Kurdish militia (YPG), witnesses said.
A YPG official said Turkish-backed fighters were still 15 km north of the city. Turkey's state-owned Anadolu agency said six civilians were killed and 13 wounded in three villages near the town of Jarablus in a YPG attack launched from north of Manbij.
TURKISH LIRA SHRUGS OFF SANCTIONS
A week after reversing U.S. policy and moving troops out of the way to allow Turkey to attack Washington's Syrian allies, Trump announced a package of sanctions to punish Ankara.
But the measures - mainly a hike in steel tariffs and a pause in trade talks - were less robust than financial markets had anticipated, and Trump's critics derided them as too feeble to have an impact.
The Turkish lira, which had fallen on the expectation of tougher U.S. measures, recovered after the sanctions were announced, as did its bond and stock markets, with traders noting that Trump had spared Turkish banks.
Bilateral trade between Turkey and the United States is relatively small - around a tenth the size of Turkey's trade with Europe. Washington's most effective form of economic leverage would be to hinder Turkey's access to U.S. financial markets, a step Trump has so far avoided.
In a potentially more damaging blow, German carmaker Volkswagen said it was postponing a final decision on whether to build a 1 billion euro ($1.1 billion) plant in Turkey, citing concern over "current developments" after international condemnation of the incursion.
Following Trump's announcement, the U.S. Treasury said on Monday it had sanctioned Turkey's energy, defence and interior ministers, as well as the ministries of energy and defence.
FOES BECOME ALLIES
Trump's unexpected decision to withhold protection from Syria's Kurds after a phone call with Turkish President Tayyip Erdogan a week ago swiftly upended five years of U.S. policy in the Middle East.
The withdrawal gives a free hand to Washington's adversaries in the world's deadliest ongoing war, namely Syrian President Bashar al-Assad and his Russian and Iranian allies.
The United States announced on Sunday it was withdrawing its entire force of 1,000 troops from northern Syria. Its former Kurdish allies immediately forged a new alliance with Assad's government, inviting the army into towns across the breadth of their territory.
The U.N. Security Council will likely meet on Wednesday to discuss the latest developments in Syria, diplomats said, the second such session since Turkey began its offensive.
Russian-backed Syrian government forces moved swiftly to fill the void left by departing Americans from Manbij west of the Euphrates river, which Turkey has vowed to capture.
"We are out of Manbij," said Colonel Myles B Caggins, spokesman for the U.S.-led coalition in Syria.
Trump's pullout ends joint U.S.-Turkish patrols of the Manbij area under a deal meant to persuade Turkey not to invade and attack the Kurdish YPG, seen by Ankara as a terrorist group aligned with Kurdish separatist insurgents in Turkey.
The YPG is also the main component of the SDF, which had been Washington's key regional ally fighting Islamic State (IS) militants.
A Reuters cameraman on the Turkish frontier reported heavy bombardment on Tuesday morning of the Syrian border town of Ras al Ain where an SDF spokesman reported a fierce battle going on.
ACCUSATIONS OF BETRAYAL
Trump has defended his reversal of U.S. policy as part of a plan to extricate the United States from "endless" wars in the Middle East.
But his critics, including senior figures in his own Republican Party, cast it as a betrayal of the Kurds, loyal allies who lost thousands of fighters as the principal ground forces in Washington's battle against IS.
France said on Tuesday it would hold talks soon with Iraqi and Kurdish leaders to weigh how, amidst the upheaval triggered by the Turkish incursion, to secure thousands of foreign and regional IS militants held in Syrian camps and prisons.
Turkey says it aims to defeat the Kurdish YPG militia and create a "safe zone" where millions of Syrian war refugees now in Turkey could be resettled.
The United Nations says 160,000 people have fled their homes as Turkish forces advance. The regional Kurdish administration puts the number of displaced at 270,000.
The U.N. Human Rights office said on Tuesday Turkey could be held responsible for war crimes by fighters under its direction, potentially including the assassination of Hevrin Khalaf, a leading Kurdish politician killed on the side of a highway on Saturday by gunmen who posted the incident on the Internet.
Turkish-backed fighters have denied blame for her murder.
Medecins Sans Frontieres (Doctors Without Borders) said it had suspended most medical aid activities in northeast Syria and was evacuating all international staff in the wake of air strikes and violence during Turkey's incursion.
Erdogan, who has pledged to continue military operations come what may, said Ankara was giving the world a chance to bring peace to the region.
"The international community missed its opportunity to prevent the Syrian crisis from pulling an entire region into a maelstrom of instability," he wrote in the Wall Street Journal. "The European Union - and the world - should support what Turkey is trying to do."
The Syrian army deployments into Kurdish-held territory evacuated by Washington amount to a victory for Assad and his most powerful ally, Russia, giving them a foothold in the biggest remaining swathe of Syria that had been beyond their grasp through much of its eight-year-old war.
Trump's allies insisted Washington had not given its blessing to the Turkish offensive, and demanded a ceasefire.
NATO Secretary General Jens Stoltenberg echoed that demand. ($1 = 0.9074 euros)
(Additional reporting by Ellen Francis and Tom Perry in Beirut, Tuvan Gumrukcu in Ankara, Can Sezer, Behiye Selin Taner and Ali Kucukgocmen in Istanbul, John Irish in Paris, Maria Tsvetkova in Moscow, Stephanie Nebehay in Geneva and Michelle Nichols at the United Nations; Writing by Peter Graff and Mark Heinrich; Editing by Mike Collett-White)
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