The European Union has given Russia a boost by designating its economy a "free market".

It is an important step forward in Russia's attempt to gain better access to world markets for its products and for it eventually to join the World Trade Organization.

The audience in the Kremlin for the opening of talks between Russian President Vladimir Putin and the EU broke into applause at the announcement.

Mr Prodi highlighted the positive in the EU-Russia relationship

But the summit between Mr Putin, the EU Commission President Romano Prodi and Spanish Prime Minister Jose Maria Aznar, still has some hard bargaining on Russia's energy polices and the effects of EU enlargement.

Mr Prodi told Mr Putin: "I am delighted to announce to you today that we are going to grant full market status to Russia.

"What we promise, Mr President, we deliver."

Energy talks continue

EU officials had warned that they would not accede to Russia's demands for market recognition until Moscow gave firm promises to liberalise its energy sector, including the elimination of massive subsidies.

But Mr Prodi focused on the continuation of talks between Russia and the EU, which accounts for 40% of Russian foreign trade.

"Our dialogue on energy, a common economic space and the euro are examples of what can be achieved," he said.

US President George W Bush has said he will also review the US attitude towards the Russian economy.

Mr Prodi stressed the importance of co-operation between the EU and Russia, but Mr Putin accused European leaders of failing to address the effect of proposed Polish and Lithuanian accession to the EU on Kaliningrad, which is surrounded by the two countries.

	Kaliningrad Former German city of Koenigsberg, home to Prussian kings Seized by Soviet Army in 1945 Home to one million Russians Strategically important Baltic Sea base Racked by poverty, organised crime, drugs, pollution and health problems

Russia wants its citizens to continue to be allowed to travel between the enclave and the main republic without the visas required to enter EU countries but these concerns "have met with no understanding", Mr Putin said.

"We're being offered solutions which mean only one thing: the right of Russians to communicate with their relatives who live in another part of the country is being ignored," he said at the start of the meeting.

"Now that we have buried the Cold War, it is very difficult to understand such an approach towards Kaliningrad," he said.

'Divisive issue'

The Russian leader said the Kaliningrad issue would affect Russia's relationship with the EU and the progress both sides want to make on a number of trade and political issues.

Mr Putin is hosting the talks in Moscow with Mr Prodi and Mr Aznar who holds the rotating EU presidency.

During the Moscow summit with Mr Bush, Russia and the US signed an historic agreement which cuts their nuclear arsenals by two-thirds.

And in Italy, President Putin and the leaders of 19 Nato countries signed a deal, establishing a new Nato-Russia council and giving Moscow an equal voice on a range of issues such as counter-terrorism, peacekeeping and arms control.