S.Korea vows firm response to more North provocation

SEOUL Aug 10 (Reuters) - South Korea vowed to respond firmly to more provocations by Pyongyang after the North fired a barrage of artillery rounds near their tense maritime border, but analysts played down the prospect of combat.

North Korea fired around 130 artillery shells off its west coast on Monday soon after a nearby South Korean military drill ended, adding to tensions over the sinking of a South Korean warship earlier this year that killed 46 sailors. [ID:nTOE678081]

Seoul says the Cheonan corvette was sunk by a North Korean torpedo, but Pyongyang denies any involvement.

"If the North continues its provocative actions and behaviour without admission or apology of the sinking of the Cheonan vessel, we will react firmly against it and the responsibility of such consequences will lie entirely with the North," the defence ministry said in a statement on Tuesday.

It did not say how it might respond, but diplomatic sources said there was little else Seoul could do beyond holding more military exercises. Another option could be to cease involvement in a joint industrial complex in the North.

The Kaesung Park complex, which began in 2003 and was designed to serve as a model of future economic cooperation, has been a lucrative source of foreign currency for the North.

Wealthy South Korea has cut off all aid and reduced to a bare minimum business ties with its impoverished neighbour. It has also staged a series of military drills, on its own and with the United States, aimed at deterring North Korea's military.

But South Korea has made it clear it will not retaliate despite the findings of an international team of security experts that the North was to blame for sinking the Cheonan.

INVESTORS WARY

Seoul knows the investment community will take flight if it does attack.

The latest tit-for-tat at a flashpoint off the west coast had little impact on domestic markets on Tuesday. Generally investors are more concerned with direct armed confrontation and have become largely inured to the sabre-rattling. [ID:nTOE67902D]

"Such news heightens the country's geopolitical risks, and is not good for overall market sentiment. However foreign investors' continued buying (of stocks), albeit moderate, indicates the negative impact is still limited," said Kim Jeong-hoon, a market analyst at Korea Investment & Securities.

The defence ministry said it had conveyed a message to Pyongyang, expressing serious concern over the artillery firing.

South Korea's military said about 10 of the artillery shells landed in a 1-2 km range south of the Northern Limit Line, the site of several deadly clashes since the 1950-53 Korean War.

Earlier this year, the North fired hundreds of artillery rounds in the same area.

The South's comments came as the United Nations Command (UNC) and North Korean military officials were holding a colonel-level meeting at the Panmunjom truce village that straddles the border between the two Koreas.

The UNC said the meetings were being held to discuss the date, agenda and protocols for general-level talks on armistice issues related to the sinking of the Cheonan corvette in March, in which 46 sailors were killed. (Additional reporting by Yeo-jung Chang and Jungyoun Park; Editing by Jonathan Hopfner and Miral Fahmy)