Korean navies clash ahead of Obama visit

North and South Korea's navies clashed briefly in the Yellow Sea today, just ahead of a visit to Asia this week by US President Barack Obama, in an incident that left a northern vessel damaged.

North Korea has a habit of increasing tension prior to major regional events and has been seeking direct talks with the Obama administration while riling global powers by last week saying it had produced more arms-grade plutonium.

The United States will announce in the next several days whether it will start direct talks with North Korea amid signs Pyongyang may be ready to return to broader nuclear disarmament negotiations, a US official said yesterday.

"North Korea is taking this aggressive stance to show they're not backing down on their security," said Yang Moo-jin, a professor at the South's University of North Korean Studies.

The North's sabre rattling is often seen by analysts as a bargaining ploy to increase its leverage in negotiations.

The South's Joint Chiefs of Staff said in a statement that a North Korean patrol vessel went about 1.3 km (0.7 miles) into waters claimed by the South.

"We fired warning shots according to protocol and the North Korean patrol ship fired directly at our vessel," it said in a statement. The North Korean vessel than went back across the sea border and there were no reported casualties, it said.

A South Korean naval source told Yonhap news agency: "It is our initial assessment that the North Korean boat suffered considerable damage".

Military officials said they would hold a news briefing at 0600 GMT.

The two Koreas have fought two deadly naval battles in the past decade in the Yellow Sea waters near the contested sea border called the Northern Limit Line.

The NLL was set unilaterally by U.S-led U.N. forces at the end of the 1950-53 Korean War, but the North has said it sees the border as invalid.

The South Korean won briefly retreated on the news. There was no noticeable impact on bonds while foreign investors kept up their buying spree of local equities.

"We will have to see what the incident means and how it came, but it's unlikely to have a lasting impact," said Choi Chang-ho, a market analyst at Shinhan Investment Corp.

Investors have grown used to the North's sabre rattling, but incidents such as this sour the mood and remind market players of the security threat North Korea poses to North Asia, which is responsible for one-sixth of the global economy.