Pro-Russian fighters in eastern Ukraine have agreed to respect a ceasefire declared by the Ukrainian president, raising hopes for an end to months of fighting that has killed hundreds and ravaged the country's industrial heartland.

The announcement on Monday came as the Russian and US presidents traded demands over the conflict.

Russian President Vladimir Putin urged direct talks between the government and the rebels.

President Barack Obama warned Putin that Moscow would face additional costs if it did not help ease the crisis.

The rebels' pledge to respect the ceasefire came on the first day of talks between a former Ukrainian president, the Russian ambassador, European officials and the eastern separatists who have declared independence.

While the government side was nominally not represented, ex-President Leonid Kuchma attended the discussions at the request of the sitting president.

The negotiations were launched in line with President Petro Poroshenko's peace plan, which started on Friday with a week long unilateral ceasefire in the fighting that has killed more than 350 people and forced tens of thousands to flee their homes.

Softened stance

Alexander Borodai, one of the rebel leaders who took part in Monday's talks in Donetsk, said the rebels would respect Poroshenko's ceasefire, which lasts through 0700 GMT (2 a.m. EDT) on Friday.

The fighters had previously demanded the Ukrainian military withdraw its troops from the east as a condition for any talks, so Borodai's statement represented a softened stance that raised expectations that the ceasefire could hold.

Even before the group made their pledge, the government said that there had been no fighting in the east since Monday morning.

Since the ceasefire was declared on Friday, the Ukrainian government has accused the rebels of firing at government positions, while the fighters blamed Ukrainian forces for failing to honour the promise to halt hostilities.

Poroshenko has said government troops would fire back if attacked.

The rebels, who have declared regions on border with Russia independent and fought government troops for two months, also promised to release observers from the Organization for Security and Cooperation in Europe who have been held hostage.

"This will be one of the steps that will improve the mutual understanding of both sides," said Alexei Karyakin, a representative of the rebels in the Luhansk region.

PHOTO CAPTION

Pro-Russian fighters rest in a shelter at their position outside Slovyansk, eastern Ukraine, Sunday, June 22, 2014.

Aljazeera