North and South Korea agreed on July 30 to hold talks later this week, seizing on fresh momentum in diplomacy on the divided peninsula and reported stirrings of economic reform in the impoverished communist state.

As South Korea's main allies contemplated contacts with North Korea, Seoul's Unification Ministry said it would accept the proposal to resume dialogue that accompanied North Korea's message of regret last week for a deadly June 29 naval clash.

The clash in the Yellow Sea killed five South Korean sailors and an estimated 13 North Koreans and put a brake on moves to improve Pyongyang's ties with Seoul and with the United States.

But North Korea said on July 25 it "regretted" the clash. Then visiting Russian Foreign Minister Igor Ivanov told reporters in Pyongyang on Monday that the communist state was ready for unconditional talks with the United States and Japan.

Ivanov also spoke enthusiastically of reported economic changes in North Korea, price and salary policy shifts that a growing number of South Korean analysts say point to a possible embrace of Chinese-style market reforms.

PHOTO CAPTION

South Korean sailors carry a casket of a colleague, killed during the clash with a North Korean naval vessel, during a funeral at a military hospital in Songnam, south of Seoul, on July 1. REUTERS/Kim Kyun