* Iran, powers step up dialogue to end nuclear standoff
* Expert talks in Vienna may help shape outlines of any deal
* Iran sets more conciliatory course but no breakthrough yet
* Iran denies halt to higher-grade uranium enrichment
By Fredrik Dahl
VIENNA, Oct 30 (Reuters) - Iran and six big powers began expert-level talks on Wednesday, building on diplomatic momentum created by a pragmatic shift in Tehran towards negotiating a peaceful solution to the dispute over Iranian nuclear ambitions.
However, despite much friendlier contacts between the sides since Hassan Rouhani took office as Iranian president with a pledge to reduce tension with the West, major differences remain to be overcome for any breakthrough deal to be reached.
Highlighting one big hurdle, Iran said it was continuing its most sensitive nuclear activity, uranium enrichment to a level close to that needed for bombs, denying a statement by a parliamentarian last week that it was halted.
"There has been no stop in the production process," Iranian nuclear energy chief Ali Akbar Salehi told Iranian parliamentary news agency Icana.
The meeting of technical and sanctions experts was meant to prepare the next round of high-level political negotiations, to be held in Geneva next week, on the contested Iranian nuclear programme with hopes of real headway after years of paralysis.
Western diplomats said the talks at the U.N. complex in Vienna could be instrumental in defining the contours of any preliminary deal on scaling back Iran's enrichment in return for relief from sanctions imposed on Tehran.
But they cautioned that there is no nascent agreement yet. The talks will be held over two days.
Iran rejects accusations it is covertly researching the means to produce nuclear weapons, saying it is refining uranium only for energy generation and use in medical treatments.
The Vienna talks began behind a veil of secrecy: guards sealed off the entrance to a conference room where place cards indicated where delegations would sit.
Officials from both sides were later seen heading to the room; they declined to comment.
After years of deadlock and increasingly bellicose rhetoric, the June election of Rouhani, a relative moderate, has dispelled an atmosphere of intransigence and pessimism rife with fears of a descent into a devastating new Middle East war.
Rouhani, a relative moderate and former chief nuclear negotiator for Iran, took office in August promising to try to resolve the dispute and secure a relaxation of sanctions that have severely damaged Iran's oil-dependent economy.
The Oct. 30-31 expert-level meeting was the latest in a series of talks over the last month.
At negotiations with the United States, Russia, China, France, Britain and Germany on Oct. 15-16, Iranian negotiators expressed readiness to address Western concerns over the programme but left many details unanswered about specific concessions they may be willing to make, diplomats said.
Separately, the U.N. nuclear watchdog and Iran said on Tuesday they held "very productive" talks this week on how to advance a long-blocked investigation into Iranian atomic activities and will meet again in Tehran next month. [ID: nL5N0IJ2E7]
"We welcome the commitment expressed by the parties to make swift progress in their cooperation aimed at resolving outstanding issues," a spokesman for European Union foreign policy chief Catherine Ashton, who coordinates the talks with Iran on behalf of the powers, said about the IAEA-Iran meeting.
Both diplomatic tracks focus on suspicions that Tehran may be seeking the capability to assemble nuclear bombs behind the facade of its declared civilian atomic energy programme.
The powers want Iran to stop 20 percent enrichment, ship out existing stockpiles of the material and cease operations at its Fordow uranium enrichment site, buried deep underground.
Iran has signalled that it may be willing to discuss suspending this higher-level enrichment if the West lifts painful sanctions on its oil and banking industries, something Western governments do not want to do as a first step.
"Iran now wants an agreement that would provide sanctions relief. To get one, Iranians are now probably prepared to make concessions that were unthinkable in Tehran before the election," Robert Einhorn, the U.S. State Department's non- proliferation adviser until earlier this year, said last week.
Diplomats said they would seek specifics at the meeting of experts, and at the follow-up negotiations to be conducted by senior foreign ministry officials in Geneva on Nov. 7 and 8, on how far Iran is willing to go to allay international concerns.