* Stern of ship may offer clues on cause of sinking
* Investors looking at how South responds
* Tensions raised on troubled peninsula (Updates number of recovered bodies, paragraph 3)
By Jon Herskovitz and Christine Kim
SEOUL, April 15 (Reuters) - South Korea on Thursday lifted the stern of a naval ship that sank after an unexplained explosion near a contested sea border with North Korea to see if Pyongyang may have had a hand in the incident that killed dozens.
South Korea’s defence minister said this month the 1,200-tonne Cheonan may have been hit by a torpedo, immediately putting suspicion on North Korea and stoking concerns that the incident could start a conflict on the long divided peninsula. [ID:nTOE63103B].
(For a Q+A on what might be at stake, please click on [ID:nTOE63D07J])
Twenty-two bodies of the 46 sailors who went missing have so far been recovered from the ship’s stern, the defence ministry said. The bodies of two other sailors were found before the salvage operation, and 58 were rescued alive.
Government officials said Seoul was looking at all possibilities for the sinking and expected the raised stern to provide clues on what caused the explosion.
The salvage operation comes as tensions on the troubled peninsula have increased with the North freezing assets of a South Korean firm at a joint tourism project north of the border once hailed as a symbol of cooperation. [ID:nTOE63708X]
The stern was raised above the water line in the morning and drained before being placed on a barge.
Seoul has few appealing options if the North was behind the sinking, but would not likely take an aggressive stance because it could escalate into a major conflict that would harm the South’s interests, analysts said.
"I do not think the South Korean government will go to war over this ... it will probably try to handle it more diplomatically," said Kim June-kie, a market analyst at SK Securities in Seoul.
Shares on Wall Street fell when reports came out shortly after the Cheonan’s sinking on March 26 that said the South was looking into the possibility of a North Korean torpedo attack.
The ship sinking could also complicate the resumption of stalled international talks on ending North Korea’s atomic arms programme in return for aid to prop up its broken economy, experts said.
North Korean leader Kim Jong-il was expected to visit his neighbour and biggest benefactor China in the coming weeks for a trip supposed to help prod Pyongyang back to the dormant talks among the two Koreas, China, Japan, Russia and the United States.
Standard & Poor’s has no plan to raise South Korea’s sovereign credit rating as long as the risks around the North Korean leadership persist, an official at the ratings agency told Reuters. [ID:nTOE63E075]
Kim faced a rare crisis to his iron grip on power late last year when a botched currency reform sparked almost unheard of civil unrest, angering an impoverished public by raising prices and making it even more difficult to obtain already scarce food. (Additional reporting by Jungyoun Park and Yoo Choonsik, editing by Jonathan Thatcher and Sanjeev Miglani)