By Alissa de Carbonnel and Pavel Polityuk
KIEV (Reuters) - Battalions of Ukrainian riot police withdrew on Wednesday from a protest camp after moving against demonstrators overnight in the authorities' biggest attempt yet to reclaim streets after weeks of protests against President Viktor Yanukovich.
Columns of police left positions around the protesters' main camp in Independence Square and withdrew from state buildings occupied by demonstrators enraged at Yanukovich's decision to spurn an EU trade deal and move Ukraine further into Russia's orbit.
Overnight the police had cleared streets near the protest camp, bulldozed tents and skirmished with demonstrators. They later surrounded the City Hall, where protesters who have set up a makeshift hospital in the occupied building sprayed them with water hoses to prevent it from being stormed.
Those moves by hundreds of black-clad police with visors and helmets were the boldest steps the authorities had ordered so far against demonstrators, although it was not clear whether they were prepared to use full force.
At stake is the future of a country of 46 million people, torn between popular hope of joining the European mainstream and the demands of former Soviet master Russia, which controls the flow of cheap natural gas needed to stave off descent into bankruptcy.
At the main protest camp on Independence Square, pop stars, politicians and priests pleaded with police not to shed blood. Opposition politicians called for mass demonstrations to protect the square and predicted that Yanukovich would soon be toppled.
The interior minister called for calm and said the square would not be stormed.
Police had been bussed in to the city center to shouts of "Get out criminal" - a reference to Yanukovich, who suspended plans to sign a trade pact with the European Union last month and instead embraced closer ties with Russia.
The police moves began in darkness near Independence Square, where thousands of protesters have maintained a vigil in bitter winter cold.
Riot police flooded roads to square and moved slowly into the main camp, bulldozing tents and barricades with tractors mounted with shovels. Dozens of demonstrators and police were hurt in scuffles but several officers said they had orders not to use force.
The action appeared to stall as day broke, with temperatures in the snowbound capital stuck at minus 8 degrees Celsius (17 Fahrenheit). Some riot police left to cheers from lines of protesters holding them back. At City Hall, demonstrators lobbed a molotov cocktail from a window into a police truck before the officers withdrew.
On the square, protesters said they had feared they would be stormed. Priests intoned prayers from a stage on the square and urged police not to use violence. Ruslana, a Ukrainian pop star, called from a loud hailer: "Do not hurt us!"
Some protesters held mobile phones in the air like candles and sang the national anthem, while church bells rang out from a cathedral about 2 km (about 1 mile) away, as in times of danger centuries ago.
"He is spitting in the faces of the United States, 28 countries of Europe, 46 million Ukrainians," opposition leader Arseny Yatsenyuk said of Yanukovich overnight. "We will not forgive him this. Tomorrow there will be a million people here and his regime will fall."
Demonstrators hailed the police withdrawal on Wednesday.
"We are seeing that truth does exist, that it is worth fighting for. It is a small victory, but these small victories will lead to big victories," said protester Serhiy Chorny.
U-TURN ON EUROPE
The crisis has added to the financial hardship of a country on the brink of bankruptcy. The cost of insuring Ukraine's debt against default rose another 30 basis points on Wednesday, close to a 4-year high set during Tuesday's trading session. It now costs $1.127 million a year to insure $10 million in Ukrainian debt for a five-year term, reflecting high risk of default.
European leaders say the trade pact with Ukraine would have brought investment. But the country's Soviet-era industry relies on Russian natural gas, giving Moscow enormous leverage.
Prime Minister Mykola Azarov said on Wednesday he had told European leaders they would need to provide Kiev with 20 billion euros in aid for Ukraine to sign the stalled pact with Brussels. He promised that a meeting with Russian officials set for Dec 17 would not include talks on joining a Moscow-dominated customs union, a main fear of the opposition.
Western countries spoke out strongly against use of force.
"The United States expresses its disgust with the decision of Ukrainian authorities to meet the peaceful protest in Kiev's Maidan Square with riot police, bulldozers, and batons, rather than with respect for democratic rights and human dignity," U.S. Secretary of State John Kerry said in a statement. "This response is neither acceptable nor does it befit a democracy."
EU foreign policy chief Catherine Ashton and U.S. Assistant Secretary of State Victoria Nuland were both in Kiev, part of an aggressive diplomatic campaign to lure Ukraine back westwards.
Nuland met the protesters and Yanukovich on Wednesday. After two hours of talks with the president, she said she had complained to him about tactics that were "absolutely impermissable" in a democratic society.
There were clear signs that the authorities were reluctant to order bloodshed on the square. Interior Minister Vitaly Zakharchenko issued a statement calling for calm.
"I want everyone to calm down. There will be no storming of the square. No one will violate your rights to protest peacefully, but do not ignore the rights ... of other citizens."
The EU's Ashton, who met Yanukovich for more than three hours on Tuesday and was due to meet him again on Wednesday, said in a statement: "I observe with sadness that police use force to remove peaceful people from the center of Kiev.
"The authorities did not need to act under cover of night to engage with society by using police."
(Writing by Richard Balmforth, Elizabeth Piper and Peter Graff; editing by Janet McBride)