S Korea says North will shut reactor once funds fred

SINGAPORE, June 2 (Reuters) South Korea's defence minister said today he expects North Korea to begin to close its nuclear reactor, the source of its weapons-grade plutonium, once 25 million dollars in frozen funds in a Macau bank are freed up.

Pyongyang missed an April 14 deadline to start closing its Yongbyon nuclear complex, insisting it must first receive money sitting in a Banco Delta Asia account. The funds were blocked after Washington blacklisted the bank, accusing it of laundering illicit North Korean funds.

The deadline for the closure of the Soviet-era reactor and inspections by the International Atomic Energy Agency (IAEA) were agreed on February 13 at six-party talks involving the two Koreas, the United States, China, Japan and Russia.

''The closure of the Yongbyon nuclear facility was the central point which the February 13 agreement revolved around. But the progress on shutting down the plan is hindered due to the Banco Delta Asia issue,'' South Korean Defence Minister Kim Jang-soo told Reuters on the sidelines of an Asian security summit.

''Once the issue is resolved, then North Korea will comply with the agreement with regard to the Yongbyon plant and also comply with the re-entry of IAEA inspectors,'' he said, speaking through an interpreter.

North Korea, which conducted its first nuclear test in October 2006, has said it could begin the shutdown within a day of receiving the funds.

The nuclear impasse between the two Koreas has overshadowed bilateral talks over aid and could lead Seoul to delay rice aid promised to its impoverished neighbour.

South Korea had pledged to send 400,000 tonnes of rice this month to help North Korea battle its chronic food shortages, but has recently indicated it would withhold the shipments for now.

Kim said that a new nuclear test by North Korea was ''one of the worst scenarios''.

''At this point in time it's rather meaningless to discuss even the possibility of North Korea conducting a further nuclear test. It's much more productive to find means to ensure North Korea starts to implement the February 13 agreement and take the initial actions.'' REUTERS SZ KP1043