NKorea nuclear talks explore possible deal

BEIJING, Dec 21 (Reuters) Negotiators in Beijing were hoping for progress today on dismantling North Korea's nuclear weapons programme but the North's preoccupation with US financial curbs against it could scuttle a deal.

Washington's envoy to the talks, Christopher Hill, said US and North Korean negotiators were working out how to implement a September, 2005 joint statement that promised aid to North Korea and security assurances in return for nuclear disarmament.

But a South Korean official said the North was refusing to budge without concessions on the US freeze of North Korean accounts at Macau's Banco Delta Asia, which Washington says was a ''willing pawn'' through which Pyongyang engaged in counterfeiting and money-laundering.

''North Korea is refusing to discuss anything but BDA (Banco Delta Asia),'' the official told reporters.

Hill said he was aiming for an agreement by Friday, offering hopes for progress in the talks that group the United States, the two Koreas, Russia, Japan and host China. The negotiations began on Monday, resuming after over a year's break.

They came about ten weeks after North Korea held its first nuclear test, drawing international condemnation and UN sanctions backed even by China, its chief aid-provider.

''We do believe that there are some elements of that September agreement that should begin to get implemented even this week,'' Hill told reporters ahead of the fourth day of talks today.

''And what I don't want is a situation where we have met this week, we have numerous discussions, and then we have nothing to do or nothing to be implemented,'' he said.

The veteran US negotiator cautioned that differences could still scuttle a deal, and the South Korean official sounded even less hopeful that agreement could be reached.

''Everything now is up to the North Koreans,'' the South Korean said. ''I don't see any chance the Americans are going to change their position,'' he said, pointing out that Banco Delta Asia was a law enforcement issue in the United States.

''EXTREME DIFFERENCES'' But Japan's Kyodo news agency quoted a North Korean diplomat in Moscow as saying that everything hinged on the United States.

In Tokyo, Japanese Foreign Minister Taro Aso also said ''extreme differences'' remained between North Korea and the other five parties, Kyodo reported.

On Monday, North Korea's chief negotiator, Kim Kye-gwan, laid out sweeping conditions, including lifting UN sanctions and the US financial crackdown. But the North appears to have taken a more pragmatic tack in subsequent talks.

Hill did not give specifics on the deal being discussed, but hinted that any steps North Korea takes toward scrapping its nuclear arms would have to include verification, likely allowing in international inspectors that the North expelled in late 2002.

''I have long maintained that we cannot have a situation where there is any kind of ambiguity in what is decided. We cannot have a situation where they pretend to do something, we pretend to believe them,'' he said.

Hill said it was his understanding that Kim had the authority to agree to a deal and the South Korean official said there could yet be a breakthrough if Kim got instructions to that effect from Pyongyang.

A US Treasury Department negotiator said separate talks on the financial restrictions were useful but the dispute was far from settled. Those talks may continue in New York in January.

''This is not an easy phase and I don't want to predict that we're going to succeed,'' Hill said.

REUTERS DKA PM1249