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Hundreds of pro-Russian separatists overran more Ukrainian government buildings near the Russian border Tuesday, seizing a prosecutor's office in Luhansk and attacking a police station with clubs and automatic weapons.

Local authorities say police did not offer resistance, and witnesses say gunmen raised a separatist flag over government headquarters in the city of 450,000 residents.

The takeover appears to give pro-Moscow rebels control of a second provincial capital in the east, after separatists seized control of Donetsk Monday and set a referendum on secession for May 11. A similar vote last month led to Russia's annexation of the Crimean peninsula.

The government in Kyiv has all but lost control of its police forces in parts of eastern Ukraine, where pro-Russian activists have seized buildings in the region's second biggest city of Donetsk and several smaller towns.

'The regional leadership does not control its police force,'' said Stanislav Rechynsky, an aide to Interior Minister Arsen Avakov. 'The local police did nothing.''

Meanwhile, Hennady Kernes, the mayor of eastern Ukraine's biggest city, Kharkiv, was in a stable condition on Tuesday in a hospital in Israel, where he was flown after an apparent assassination attempt.

US, EU sanctions

U.S. Treasury Secretary Jack Lew said Tuesday that international sanctions imposed on Russia are putting pressure on the country's economy, and that more actions may be taken if Moscow's behavior does not change.

'You have to look over the period of time Russia went into Crimea, since we've imposed sanctions, there has been a quite substantial deterioration in Russia's already weak economy,' Lew told a U.S. House Appropriations subcommittee hearing. 'We see it in their stock exchange, we see it in their exchange rate, we see it in a number of important economic indicators.''

Lew said the United States is keeping its options open and is prepared to take further action if Russian policy toward Ukraine doesn't change.

The European Union Tuesday announced asset freezes and travel bans on 15 Russians and Ukrainians over Moscow's actions in Ukraine, but the measures were seen as less aggressive than sanctions imposed this week by the United States

While visiting Cuba Tuesday, Russian Foreign Minister Sergei Lavrov slammed U.S. and European Union sanctions, saying they defied common sense and were the work of weak politicians in the West 'attempting to blame others.'

Putin on sanctions President Vladimir Putin said on Tuesday that Russia sees no need for counter-sanctions against the West, but could reconsider the participation of Western companies in its economy, including energy projects, if sanctions continued.

'We would very much wish not to resort to any measures in response,' he told reporters after meeting leaders of Belarus and Kazakhstan in Minsk.

'But if something like that continues, we will of course have to think about who is working in the key sectors of the Russian economy, including the energy sector, and how,' added Putin.

Putin reiterated his accusations that the United States was orchestrating the Ukraine crisis.

Intercepted calls

Secretary of State John Kerry says the United States has recordings proving that Moscow is running a network of spies inside eastern Ukraine, reports The Daily Beast which says it obtained a recording of a closed-door meeting attended by the U.S. top diplomat.

'We know exactly who's giving those orders, we know where they are coming from,' Kerry reportedly said at a private meeting of the Trilateral Commission in Washington.

Kerry, according to The Daily Beast, didn't name specific Russian officials implicated but claimed that the intercepts provided proof of Moscow deliberately fomenting unrest in eastern Ukraine - and lying about it to U.S. officials and the public.

'This is insulting to everybody's intelligence, let alone to our notions about how we ought to be behaving in the 21st century. It's thuggism, it's rogue state-ism. It's the worst order of behavior,' Kerry reportedly said.

Status of OSCE monitors

In separatist-held Slovyansk, the self-declared mayor said he would discuss the release of detained military observers only if the European Union dropped sanctions against rebel leaders.

But later in the day, Vyacheslav Ponomaryov said 'good progress' had been made in talks with the Organization for Security and Cooperation in Europe (OSCE) on the release of seven of its observers held since Friday. The observers had travelled to eastern Ukraine under the auspices of the democracy watchdog.

Meanwhile, there is no visible sign of any sizeable troop movements away from Ukraine's border where Moscow deployed tens of thousands of soldiers and hardware, a NATO official said Tuesday.

In a phone call Monday, Russian Defense Minister Sergei Shoigu told U.S. Defense Secretary Chuck Hagel that Russian forces, which he said started drills near the border last week, had returned to their permanent positions, according to the Russian government.

'We currently have no information that indicates a withdrawal of Russian troops from the Ukrainian border. We continue to urge Russia to abide by the Geneva agreement and to pull back all its troops along the Ukrainian border in favor of diplomacy and dialogue,'' a NATO official told Reuters.

^{Some information for this report contributed by AP and Reuters.}