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Russia's President Vladimir Putin (L) talks with German Chancellor Angela Merkel (R) as Italy's Prime Minister Matteo Renzi stands on the back during a meeting on the sidelines of a Europe-Asia summit (ASEM) in Milan October 17, 2014. REUTERS/Daniel Dal Zennaro/Pool

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By Alexander Winning and Christian Lowe

ST PETERSBURG, Russia (Reuters) - President Vladimir Putin said on Friday Russia did not hold a grudge against the European Union and was ready to improve relations, but he offered little prospect that mutual sanctions would be eased soon.

Speaking on the day the EU said it would extend sanctions on Russia imposed over its annexation of Crimea in 2014, Putin played down their impact and painted a bullish picture of an economy recovering despite low oil prices.

But in a disappointment for investors, he provided little hope that either Russia or the EU were likely to soften their sanctions, and was vague about the steps Russia would take to improve its investment climate.

"We do not hold a grudge and are ready to meet our European partners halfway," Putin told the annual St Petersburg International Economic Forum. "But it certainly cannot be a one-way game."

Despite lingering tensions over Ukraine, there are tentative signs of a thaw in relations and European Commission President Jean-Claude Juncker met Putin at the St Petersburg forum.

They did not discuss the sanctions, however, Kremlin spokesman Dmitry Peskov said, according to the Tass news agency.

Replying to investors' questions, Putin said Russia did not intend to soften its counter-sanctions, banning most European food imports, before the EU's sanctions were lifted.

He blamed the United States for persuading European countries to continue sanctions against their own interests.

"They (Russian counter-sanctions) affect Europe, but they don't affect the U.S. - they have nil effect," Putin said. "But the U.S. says to its partners: 'you need to put up with it'. Well, if they want to, let them put up with it."

Putin said Russia was liberalising its investment climate, but offered few specifics, except to pledge that he would sack governors who failed to support business.

Russia had weathered economic difficulties successfully, he said, citing falling inflation and capital flight and the preservation of foreign exchange reserves.

"Russia has been able to solve the most acute problems and already in the near future we count on the renewal of (economic) growth," he said.

(Additional reporting by Ekaterina Golubkova; Writing by Lidia Kelly and Jason Bush; Editing by Andrew Osborn and Robin Pomeroy)

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