Yugoslavs Back Federation for 3 Months : Talks: As separatist battles rage on, the country’s financial structure lives on borrowed time.

Yugoslav leaders on Wednesday agreed on an interim plan for keeping the federation financially afloat as fighting between Croats and Serbs raged in a contested region of the secessionist Croatian republic.

A policeman and two others died in the fighting in Osijek and other towns in the ethnically mixed Slavonia region of Croatia, making further mockery of a two-week-old cease-fire imposed by the federal leadership.

Since Croatia declared its independence on June 25, more than 200 people have died in ethnic clashes. The Croatian leadership claims the federal army has intervened on the side of the ethnic Serbs, but the army has denied it.

“There is absolutely no truth in those reports,” Maj. Gen. Marko Negovanovic, a member of the military’s supreme command, told the Associated Press. He repeated the army’s explanation that its troops are in Croatia to separate the warring Serbs and Croats.

In other incidents, villages around Osijek and the town of Daruvar were also scenes of Serb militia action, according to an army major in the region.

The official news agency Tanjug reported exchanges of mortar and sniper fire in Pakrac, 70 miles southeast of Zagreb, during the night. Laslovo, about 15 miles south of Osijek, came under heavy mortar fire at midday, a witness said.

In Belgrade, the federal presidency and presidents of Yugoslavia’s six republics ended a second day of talks on the federation’s future by agreeing to support the federal government financially for three more months, Tanjug said.

“It is necessary to ensure the functioning of Yugoslavia’s internal market, the monetary . . . system, banking ties with foreign countries, the system of internal payments, collection of customs duties and the federal budget” the statement said.

Croatian Premier Franjo Greguric refused to approve parts of the federal budget that dealt with defense, the statement said. Croatia has stopped payments into federal coffers for defense and has refused to send soldiers to the army.

The long-awaited talks had resumed negotiations that faltered over the question of how to structure the country in the light of its many ethnic and political schisms.

Croatia, along with Slovenia, broke away after Serbia, the largest republic, contested their desire for a loose association of sovereign states. Serbia and its ally Montenegro want to maintain strong central control.

On Tuesday, the leaders agreed to base further talks on the “right of every nation to self-determination, including the right to secession and association.”

They said changes in external and internal borders could not be undertaken unilaterally or by force.

Their agreement points to the heart of the quarrel in Croatia, where ethnic Serbs who make up about 12% of Croatia’s population are fighting to join Serbia or, at least, remain a part of greater Yugoslavia.

Croatia claims that Serbia--through the Serb-dominated army--is fighting to claim the Serbian areas of Croatia as its own.