* Obama and Merkel reaffirm friendship after spying row
* EU’s Juncker expresses exasperation with Greek PM
* Climate, health, militant threats on leaders’ agenda (Recasts throughout)
By Jeff Mason and Noah Barkin
KRUEN, Germany, June 7 (Reuters) - Group of Seven (G7) leaders vowed at a summit in the Bavarian Alps on Sunday to keep sanctions against Russia in place until President Vladimir Putin and Moscow-backed separatists fully implement the terms of a peace deal for Ukraine.
The Ukraine conflict and a long-running debt standoff between Greece and its European partners dominated the first day of the annual meeting hosted by Chancellor Angela Merkel at Schloss Elmau, a luxury Alpine hotel in southern Germany.
Merkel is hoping to secure commitments from her G7 guests to tackle global warming ahead of a major United Nations climate summit in Paris in December.
The German agenda also foresees discussions on global health issues, from Ebola to antibiotics and tropical diseases. But Ukraine took centre stage on Sunday, with U.S. President Barack Obama calling for “standing up to Russian aggression”.
The leaders want Russia and Ukraine to comply with a Feb. 12 ceasefire agreed in the Belarus capital Minsk that largely halted fighting in eastern Ukraine between pro-Russian separatists and Ukrainian government forces.
EU leaders agreed in March that sanctions imposed over Russia’s seizure and annexation of Crimea and destabilisation of eastern Ukraine would stay until the Minsk ceasefire was fully applied, effectively extending them to the end of the year, but a formal decision has yet to be taken.
Merkel said any easing of the sanctions depended largely on Russia and its behaviour in Ukraine.
European Council President Donald Tusk went further, saying: “If anyone wants to start a discussion about changing the sanctions regime, it could only be about strengthening it.”
European monitors have blamed a recent upsurge in violence in eastern Ukraine on the pro-Moscow separatists. Russian President Vladimir Putin was frozen out of what used to be the G8 after Moscow’s annexation of Crimea last year.
Before the summit, Merkel held a bilateral meeting with Obama and they attended an outdoor party in the idyllic Alpine village of Kruen under blue skies, surrounded by Bavarians in traditional dress.
The U.S. and German leaders reaffirmed their nations’ friendship, after a recent deterioration in ties due to revelations of widespread surveillance of German citizens, including Merkel’s phone, by the U.S. National Security Agency.
“My message to the German people is simple: We are grateful for your friendship, for your leadership,” said Obama, using the traditional Bavarian greeting “Gruess Gott” with a crowd gathered in the village square in Kruen. “We stand together as inseparable allies in Europe and around the world.”
On Greece, European Commission President Jean-Claude Juncker voiced exasperation with Prime Minister Alexis Tsipras, who has dismissed the latest aid-for-reform proposal from international creditors as “absurd”.
A White House spokesman said Obama discussed the debt crisis with Merkel and hoped Greece and its partners could find a solution that enabled Athens to reform and return to growth without turmoil on global financial markets.
Athens is running out of cash and will default on its debt, a move that could end up pushing it out of the euro zone, if it fails to reach a deal with its euro zone and International Monetary Fund creditors in the coming weeks.
Juncker reaffirmed that a so-called “Grexit” was not an option being considered, but said this did not mean he could “pull a rabbit out of a hat” to prevent it if Greece made no effort to reform its public finances.
Japan said it would favour the G7 countries setting their own target for reducing carbon dioxide emissions, in a boost for efforts to combat global warming.
A spokesman for Japanese Prime Minister Shinzo Abe said when asked whether the G7 should set its own specific goal: “The best scenario would be yes but... let’s wait (until) tomorrow’s G7 leaders’ discussion.”
He was speaking after Abe met French President Francois Hollande, who will host the Paris climate talks at the end of the year.
Leaders and reporters were shuttled to the summit site by helicopter on Sunday morning after hundreds of protesters blocked the main road to Schloss Elmau.
On Saturday, thousands of anti-G7 protesters marched in the nearby town of Garmisch-Partenkirchen. There were sporadic clashes with police and several marchers were taken to hospital with injuries, but the violence was minor compared to some previous summits.
Germany deployed 17,000 police around the former Winter Olympic games venue at the foot of Germany’s highest mountain, the Zugspitze. Another 2,000 were on stand-by across the border in Austria. (Additional reporting by Paul Carrel, Paul Taylor, Michelle Martin, Andreas Rinke, Gernot Heller, Sabine Siebold; writing by Noah Barkin; Editing by Kevin Liffey and Mark Trevelyan)