WRAPUP 9-Two Koreas snarl at each other, tensions rise

* South to take North to U.N. Security Council

* China urges calm; US announces joint military exercise

* U.S. urges China to pressure the North, backs South

* North Korea say it will shoot at South’s equipment
(Adds U.N. diplomats in paragraph 3)

By Jack Kim and Arshad Mohammed

SEOUL/BEIJING, May 24 (BestGrowthStock) – South Korea on Monday
announced steps to tighten the vice on the North’s already
stumbling economy in punishment for sinking one of its navy
ships, and both sides intensified war-like rhetoric.

South Korean President Lee Myung-bak, in a nationally
televised address, said he would take the issue to the U.N.
Security Council, whose past sanctions are already sapping what
little energy North Korea’s communist economy has left.

In what several diplomats in New York said was an unusual
intervention in Security Council matters, U.N. Secretary
General Ban Ki-moon expressed confidence the Council would take
“appropriate” measures. [ID:n24256472]

The United States, which backs Seoul, said the situation
was “highly precarious” and that it would take part in a joint
naval exercise with the South. [ID:nTOE64N05Y] [ID:nWBT013947]

China, the North’s only major ally, urged calm.
[nTOE64N07Y]

Last week international investigators issued a report
accusing the North of torpedoing the Cheonan corvette in March,
killing 46 sailors in one of the deadliest clashes between the
two sides since the 1950-53 Korean War.
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For complete North Korea coverage, click [ID:nNORKOR]
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The United States, which has 28,000 troops on the
peninsula, threw its full support behind South Korea and said
it was working hard to stop the situation from worsening.

The Pentagon announced plans for a joint U.S.-South Korean
anti-submarine drill “in the near future” and said talks were
underway on joint maritime interdiction exercises. Seoul
believes a North Korean submarine infiltrated its waters and
fired on the Cheonan.

With U.S. Secretary of State Hillary Clinton in Beijing,
Washington pressed China to rein in the hermit state, which is
already at loggerheads with the international community over
its program to build nuclear weapons.

China has avoided taking sides in the issue of the sunken
ship. Analysts say it fears destabilizing the grip of North
Korean leader Kim Jong-il, who looks increasingly frail as he
tries to secure the position of his youngest son as successor
to the family dynasty that has ruled for more than 60 years.

Vitriolic comments across the heavily defended border are
rattling investors and niggling at diplomatic relations.

(For a Q+A on the crisis click [ID:nTOE64M02F])

Few analysts believe either Korea would dare go to war. The
North’s military is no match for South Korean and U.S. forces.
And for the South, conflict would put investors to flight.

“I solemnly urge the authorities of North Korea … to
apologize immediately to the Republic of Korea (South Korea)
and the international community,” the South Korean president
said in his address.

BANNING TRADE, INVESTMENTS, VISITS

His government also banned all trade, investment and visits
with North Korea and stopped Pyongyang’s commercial shipping
using a cheaper route through its waters. [ID:nSUL000054] (For
a factbox on the measures, click [ID:nSGE64N1OE])

In New York, the U.N. secretary general Ban told a monthly
news conference he was confident the Council would take
measures “appropriate to the gravity of the situation.

He added that he hoped “the council’s prompt action will
also contribute to the early resumption of the six-party talks
to address nuclear issues and other outstanding concerns.”

The stalled six-party aid-for-disarmament talks included
North and South Korea, China, Russia, the United States and
Japan. North Korea is currently under U.N. sanctions for
testing nuclear devices in 2006 and 2009.

The White House called South Korea’s measures to punish the
North entirely appropriate and told Pyongyang to stop its
“belligerent and threatening behavior” as tensions on the
peninsula escalated to their highest in years.

But Clinton avoided answering a question on whether
Washington would support additional U.N. sanctions. China holds
a veto and is very unlikely to support more U.N. sanctions.

Japan’s prime minister instructed his cabinet to consider
what form of sanctions could be taken over the sinking.

U.N. diplomats say it is unclear what, if anything, the
15-nation Council could do.

Secretary-general Ban, a former South Korean foreign
minister, made no suggestions on measures. But his remarks
could add pressure on China not to block all council action.

North Korea threatened to fire at equipment the South said
it would put up to broadcast anti-Pyongyang messages and was
ready to take stronger measures if the South boosted tension.

NUCLEAR DETERRENT

It also issued a statement repeating its position that it
had the right to expand its nuclear deterrent.

“North Korea’s goal is to instigate division and conflict,”
said Lee, speaking from the country’s war memorial in Seoul.
“It is now time for the North Korean regime to change.”

South Korea said it planned to reduce the number of workers
in a joint factory park just inside the North which has been an
important source of income for the North Korean leadership.

Much of the diplomatic focus will be on China, the only
major power to support North Korea and which this month — to
the south’s annoyance — hosted a rare overseas visit by the
North’s leader, Kim Jong-il.

Analysts say China’s leaders fear that if North Korea’s
government falls, it will send chaos across into its territory
and lead to U.S. troops moving right to its border.

A South Korean government report said the North’s trade
fell 10 percent last year and could fall further this year,
making it even more dependent on China.

The South Korean won fell more than 2 percent to hit an
eight-month intraday low against the dollar on investor jitters
over the stand-off with the North as well as the continuing
euro zone crisis.

Local financial markets took some relief from Lee’s
comments which avoided suggestion of military retaliation.

“South, North tension is certainly not positive, but given
historical trends, losses that markets suffer over this will be
brief, unless a drastic situation takes hold. By drastic, I
mean war. I do not think war is likely though,” said Kwak
Joong-bo, a market analyst at Hana Daetoo Securities.

Stock Market Analysis
(Additional reporting by Jungyoun Park and Yoo Choonsik in
Seoul, Jeff Mason and Phil Stewart in Washington, Louis
Charbonneau at the United Nations; Writing by Jonathan
Thatcher; Editing by Ron Popeski and David Storey)

WRAPUP 9-Two Koreas snarl at each other, tensions rise