UPDATE 2-NATO regrets Russian arms move, won't retaliate

(Adds OSCE concerns, details)

By Mark John

BRUSSELS, Dec 12 (Reuters) - NATO allies "deeply regret" Russia's long-expected decision to suspend its participation in a key European arms treaty on Wednesday but will continue to meet their obligations under it, the alliance said.

Moscow froze compliance with the Conventional Forces in Europe (CFE) treaty limiting post-Cold War arms levels in a long-running row over the stationing of Russian forces in Georgia and Moldova which Moscow says are merely peacekeepers.

"NATO allies deeply regret that the Russian Federation has proceeded with its intention to unilaterally 'suspend' implementation of CFE Treaty obligations," NATO said in a statement.

"NATO allies ... want to resolve the current impasse and preserve the benefits of this landmark treaty. They have therefore chosen not to respond in kind at this stage."

It said NATO allies would meet treaty obligations regarding exchange of military information at a scheduled meeting in Vienna on Friday which Russia has said it will skip.

Analysts doubt the Russian suspension will spark a new arms race and see it as a Russian protest to the eastward expansion of NATO, which has handed membership to a string of ex-Warsaw Pact countries and is open to others who meet its criteria.

Moscow has been irked by U.S. plans for a missile shield system based in Poland and the Czech Republic, and by U.S. moves to open bases in new alliance members Romania and Bulgaria.

It further complains that the treaty restricts its freedom to deploy troops and weapons west of the Ural mountains.

The NATO statement appealed to Russia to rescind its decision and to respond to proposals put forward by allies, notably the United States, aimed at resolving the stand-off.

"NATO allies strongly urge the Russian Federation to respond to these efforts," it added.

The Organisation for Security and Cooperation in Europe (OSCE), Europe's main human rights and security watchdog, also urged Russia to reconsider its move, warning the suspension could undermine European security.

"The loss of the CFE system of limitations, information and verification would be detrimental to all and could have security implications for all of Europe," said OSCE chairman-in-office, Spanish Foreign Minister Miguel Angel Moratinos.

Western capitals regard Russia's move as another sign of the assertive foreign policy approach of President Vladimir Putin.

In the first practical effect of the suspension, Russia has notified parties to the treaty that it will not provide information it is required to disclose under the treaty on Friday at an annual exchange of documents in Vienna.

Russia's military says this will be the only practical implication. But a senior lawmaker said last week Moscow would not rule out increasing its troop levels later if NATO ramps up its forces in eastern Europe. (Additional reporting by Boris Groendahl in Vienna) ((mark.john@reuters.com; +32 2 287 6841; Reuters Messaging: mark.john.reuters.com@reuters.net))

Keywords: RUSSIA TREATY/NATO