Stray South Korea fishing boat held in North

SEOUL (Reuters) - North Korea towed a South Korean fishing boat to one of its ports on Thursday after the vessel inadvertently strayed into its territorial waters, a South Korean military official said.

The incident, probably the result of a broken navigational system, comes at a time of chilling relations between the two and an increasingly militant North that analysts say is in the midst of a sensitive process of resolving the leadership succession in Asia's only communist dynasty.

The South has asked its neighbor to allow the vessel and its crew of four to return. The North has sent a reply that the crew was being interrogated but did not offer other details.

North Korea is more likely to use the boat as a bargaining chip in its dealings with the South than to send it back quickly, said an expert on the North's negotiating tactics, Paik Hak-soon of the Sejong Institute near Seoul.

"But it's got no reason to come across the bad guy in this case by ignoring a humanitarian plea for its release," he added.

Fishing and other light vessels from both sides have strayed into the waters of the other in recent years where crews have been returned. But hundreds of other fishermen are thought to be held by the North after being abducted off the coast.

In the latest case, the boat appears to have strayed across the border on the east coast of the peninsula where it was intercepted by a North Korean patrol boat, the South Korean military official said.

Earlier news reports said the boat had been captured by a North Korean patrol, but the official with the South's Office of the Joint Chiefs of Staff said the North's vessel never crossed the border into the South.

"It is not likely a case of a North Korean vessel venturing into the South and capturing the ship," he said.

The incident gave a lift to South Korean defense company shares but otherwise financial markets largely ignored the latest potential rift in relations, with analysts saying investors were unlikely to be fazed by anything less than direct military confrontation.

"I don't think South Korea's country risk will be heightened further unless we see more drastic actions taken, such as a military clash," said Park Suk-hyun, market analyst at KTB Securities in Seoul.

PARIAH STATE

North Korea, already a pariah state, has become even more isolated by the international community in recent months after a series of missile launches and its second nuclear test which resulted in tighter U.N. sanctions.

In an indication that China, the closest Pyongyang has to a major ally, was backing a tighter enforcement of sanctions, Beijing has suspended a joint mining project with a North Korean firm blacklisted under a Security Council resolution, a South Korean news report said on Thursday.

The report comes days after China's customs service seized a shipment of vanadium, a metal used in making missile casings, that was bound for North Korea.

Pyongyang argues that in the face of a hostile United States, which has close to 28,000 troops on South Korean soil, it has no choice but to build a nuclear deterrent.

But many analysts say the latest grandstanding has more to do with leader Kim Jong-il's desire to win support from his military and help secure the succession for his third son, Jong-un.

The question of succession has suddenly looked more urgent after the 67-year-old iron ruler suffered what many believe to have been a stroke almost a year ago. Recent photographs show Kim looking haggard and frail.

U.N. Secretary General Ban Ki-moon, who was formerly South Korea's foreign minister, said he was willing to visit the North Korea to defuse tensions.

The North has already been holding a South Korean worker for about four months for allegedly insulting the North's political system at a factory park jointly run by the rival Koreas despite repeated demands by Seoul for his release.

The North is also holding two U.S. journalists, both of whom it sentenced last month to 12 years hard labor for "grave crimes" after they were caught at the border with China.

(Additional reporting by Cheon Jong-woo and Christine Kim, editing by Jonathan Thatcher and Sanjeev Miglani)