By Pavel Polityuk and Richard Balmforth
KIEV (Reuters) - Ukraine's former prime minister Yulia Tymoshenko exceeded her powers by ordering state energy firm Naftogaz to sign a gas deal with Russia in 2009, a judge ruled on Tuesday, a verdict set to further strain ties between Ukraine and the West.
State prosecutors have asked the court to sentence Tymoshenko, main political opponent of President Viktor Yanukovich, to seven years in jail for rail-roading Naftogaz into the gas deal with Russia's Gazprom in 2009.
The Yanukovich leadership says the 10-year contract with Russia has saddled the former Soviet republic with an exorbitant price for vital supplies of Russian gas.
But the European Union, one of Ukraine's main trading partners along with Russia, has told Yanukovich, who narrowly beat the charismatic Tymoshenko for the presidency in February 2010, that landmark economic agreements will be in jeopardy if she is jailed.
Judge Rodion Kireyev, in a lengthy statement to the court in which he was expected also to deliver sentence, said the opposition leader's actions while she was prime minister had led to a loss for Naftogaz of 1.5 billion hryvnias ($188 million).
"In January 2009, Tymoshenko Yu. V., exercising the duties of prime minister ... used her powers for criminal ends and, acting deliberately, carried out actions ... which led to heavy consequences," he said.
Though Russia has rejected charges by the Yanukovich leadership that the deal was dishonestly negotiated, it is in talks with Ukraine on its terms. The Kiev government says it hopes a new contract will be tied up by the end of the year.
Tymoshenko, 50, who was flanked by her daughter and husband in court, bristled defiance from the outset of the hearing.
"You know very well that the sentence is not being pronounced by Judge Kireyev but by President Yanukovich," she told journalists before the reading of the judgment.
"Whatever the sentence pronounced, my struggle will continue. This sentence, written by Yanukovich, will not change anything in my life or in my struggle," she said.
SUPPORTERS, OPPONENTS, POLICE
About 2,000 Tymoshenko supporters, scores of riot-police and crowds of anti-Tymoshenko demonstrators who turned out at the behest of the ruling Regions Party gathered outside the central Kiev court for the final curtain to come down on the trial.
The outcome of the Tymoshenko trial, which opened in late June and has kept political tension at a high throughout summer, could yet determine the speed of Ukraine's integration into the European mainstream.
On Monday the EU's foreign policy chief Catherine Ashton told reporters:
"We are not optimistic about this trial. Our impression remains (that it amounts to) selective application of justice."
The bloc has warned Yanukovich, Tymoshenko's arch-rival, that bilateral agreements on association and a free trade zone will be in danger if she is jailed.
Tymoshenko, who has been held in police detention for contempt of court since August 5, has denied any wrong-doing in brokering the 2009 deal which ended a pricing dispute with Russia that had led to disruptions in gas supplies to parts of the EU.
When the judge late last month called an adjournment until Tuesday it was widely seen as a strategic pause to give Yanukovich and his advisers time to consider their options in the face of the Western criticism.
He has maintained her prosecution is a matter for the courts.
EU diplomats have urged Yanukovich to use his powers to "decriminalize" the charge against her -- reclassifying it as an administrative rather than an criminal offence -- to allow her to go free. But on the eve of the trial resuming there was still no sign of a move in this direction.
Her supporters say Yanukovich wants to neutralize her as a political force before next year's parliamentary election.
She and Yanukovich have been at each other's throats since 2004 when Tymoshenko used her PR savvy and rhetoric as a leader of the "Orange Revolution" to doom his first bid for presidency.
She went on to hold the post of prime minister twice under former President Viktor Yushcyhenko who gave evidence against her at her trial.
The election run-off between Yanukovich and Tymoshenko was a particularly bitter affair and she refused to recognize his victory for weeks.
She stepped down finally as prime minister, but has continued to heap scorn on his leadership and on the wealthy industrialists who support him.
(Additional reporting by Justyna Pawlak in Luxembourg; Reporting by Pavel Polityuk and Olzhas Auyezov; Writing By Richard Balmforth; Editing by Matthew Jones)