By Douglas Busvine and Andreas Rinke
MOSCOW (Reuters) - Russian President Vladimir Putin dismissed German criticism of his human rights record on Friday as Chancellor Angela Merkel began a visit to Moscow with a chill descending on relations between the two big European powers.
Merkel and Putin sat together at a conference before going in to talks at which German lawmakers had asked her to press the Kremlin leader over what they see as a crackdown on dissent since he began a six-year third term in May.
They at first looked uncomfortable but appeared to relax and occasionally laughed during questions from business leaders on issues ranging from strong business ties to Russia's jailing of members of the Pussy Riot punk band over a church protest.
Both made clear they wanted to avoid any impression of friction that might undermine a business relationship worth more than $80 billion a year in annual trade.
"We want Russia to succeed," Merkel said. "We have our own ideas on how one can succeed. Our ideas don't always coincide, but what matters is that we listen to each other."
She said Germany needs Russia for raw materials such as gas and oil, while Russia needs Germany to help in modernization, infrastructure and health care.
Putin, sitting close to Merkel in the glittering Alexander Hall of the Grand Kremlin Palace, said Russia was listening to its critics but made politely clear that they did not fully understand events in Russia.
"As for political and ideological issues, we hear our partners. But they hear about what's happening from very far away," he said.
He accused one of the Pussy Riot members of taking part in an anti-Semitic protest while part of another radical movement, although the group denies his interpretation of the protest.
Going on the offensive, he shrugged off criticism of a lack of freedom of information in Russia and said five German states had no laws guaranteeing such freedoms.
With a touch of irony, he added: "On there being no German who would be a model to us, there is such a German - that is the Federal Chancellor."
The two leaders then headed into private talks in the Kremlin that were likely to be frosty after the Bundestag agreed a resolution last week expressing alarm over the threat to civil society in Russia posed by Putin's return to the presidency.
Putin's spokesman denounced a rise in "anti-Russian rhetoric" in Germany before the talks but Putin said the size of bilateral trade made a mockery of talk of a chill in relations.
"Some disagreements might take place, yes. We argue, search for compromises. But there is certainly no gloomy atmosphere," the Kremlin leader said.
STRONG BUSINESS RELATIONSHIP
Despite their political differences, Germany and Russia have managed to keep business ties on track since the fall of the Soviet Union in 1991 and Germany receives 40 percent of its gas and 30 percent of its oil from Russia.
Berlin hopes to avoid any disagreement that might provoke Moscow into retaliating by reducing energy supplies to Europe, as has happened before during Russian price disputes with its neighbor Ukraine.
The European Union has already challenged the pricing policy of state energy export monopoly Gazprom, and opened an investigation into whether this policy is fair.
But concerns about human rights and democracy in Russia have grown in the West since Putin returned to the presidency, facing the biggest protests since he first rose to power in 2000.
Russian parliament, dominated by his party, has pushed a series of laws since May which critics say are intended to stifle dissent, including legislation that went into force on Wednesday broadening the definition of treason.
The West also condemned Putin over the jailing of two members of Pussy Riot after their irreverent protest against him in Moscow's main Russian Orthodox cathedral, although the German town of Wittenberg was criticized for nominating the group for a freedom of speech prize in October.
Putin, a German speaker who spent five years in Dresden for the KGB, has never had as strong a relationship with Merkel as with her predecessor, Gerhard Schroeder.
But despite their uneasy relationship, deals to be clinched during the visit included Russian Railways signing a letter of intent to buy nearly 700 locomotives from Germany's Siemens for about 2.5 billion euros ($3.2 billion), sources said.
(Additional reporting by Darya Korsunskaya, Noah Barkin, Maria Sheahan and Jens Hack, Writing by Timothy Heritage; Editing by Jon Boyle)
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