Putin says West using sanctions to undermine Russia

President Vladimir Putin on Thursday accused the West of exploiting the Ukraine crisis to undermine Russia, saying in a key speech that Crimea had "sacred" significance for Russia.

Addressing hundreds of dignitaries, lawmakers and officials in his annual state of the nation address at the Kremlin, Putin said however that Russia would not sever ties with the West despite raging confrontation with Brussels and Washington over the Ukraine conflict.

"Every time someone believes Russia has become too strong, independent, these instruments get applied immediately," Putin said, referring to sanctions.

The West "would have thought up some other excuse to contain Russia's growing possibilities", failing the current tension over Crimea and Ukraine, Putin said.

But the Russian leader dismissed the country's mounting economic troubles as the economy slides into recession under the pressure of Western sanctions and falling oil prices.  "We are ready to take upon any challenge and win."

Employing emotional language, Putin said that Crimea, which Moscow seized from Ukraine in March, had a "sacred" significance for Russia.

He said Russia would not scale back its ties with the West despite bitter confrontation over the Ukraine crisis which saw Brussels and Washington slap several rounds of sanctions against Moscow this year.

"Under no circumstances are we going to scale back our ties with Europe, America, at the same time we will revive and expand traditional ties with the south of the American continent, will continue cooperation with Africa, with countries in the Middle East," he said.

He added that Russia would not get sucked into a new arms race but insisted that the country's army was ready to deflect any attack.

Halt collapse of ruble

The Russian leader also announced a number of economic measures aimed at improving conditions for business and demanded officials take action to halt the ruble collapse.

"I ask the Bank of Russia and the government to carry out tough coordinated actions to discourage the so-called speculators from trading on the fluctuations of the Russian currency," he said. 

On Monday, the beleaguered ruble suffered its biggest one-day fall since the 1998 financial meltdown after oil prices sank further. The ruble has declined by 60 percent against the dollar since the start of the year, and is down by some 45 percent against the euro. 

Many analysts increasingly fret over the country's economic outlook and the authorities' apparent reluctance to change tack over the Ukraine crisis as the economy heads into recession. 

Putin, who enjoys sky-high ratings triggered by the seizure of Crimea from Ukraine despite economic trouble, has so far brushed off concerns, saying the economic damage from the falling ruble was "not fatal". 

In a fresh blow to Putin's pledges to root out a bloody insurgency in the volatile North Caucasus, heavily-armed gunmen in Chechnya killed several police and stormed several buildings including a school in the capital Grozny in the small hours of Thursday, just hours before Putin's address.