South Korea Scrambles Jets After North Fires on Island; Two Soldiers Dead

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Source: Yonhap News via Bloomberg

Smoke rises from Yeonpyeong Island on Nov. 23.

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Source: Yonhap News via Bloomberg

Smoke rises from Yeonpyeong Island on Nov. 23. Close

Smoke rises from Yeonpyeong Island on Nov. 23.

Source: Yonhap News via Bloomberg

Smoke rises from Yeonpyeong island in South Korea, on Nov. 23, 2010. Close

Smoke rises from Yeonpyeong island in South Korea, on Nov. 23, 2010.

Photographer: SeongJoon Cho/Bloomberg

A man reads a newspaper report on the attack on South Korea, while travelers listen to a television news report at Seoul railway station in Seoul, South Korea. Close

A man reads a newspaper report on the attack on South Korea, while travelers listen to a television news report at... Read More

Photographer: Dmitry Kostyukov/AFP/Getty Images

U.S. special envoy on North Korea Stephen Bosworth speaks during a news conference in Moscow on Dec. 14, 2009. Close

U.S. special envoy on North Korea Stephen Bosworth speaks during a news conference in Moscow on Dec. 14, 2009.

North Korea lobbed artillery shells at a South Korean island near the disputed border between the two countries, killing two soldiers and setting houses ablaze in the worst attack on its neighbor in at least eight months.

South Korea returned fire with 80 shells and scrambled fighter jets as President Lee Myung Bak vowed to respond “sternly.” Local television channel YTN showed smoke billowing from Yeonpyeong island off South Korea’s northwest coast and said residents took cover in bomb shelters. Stocks and U.S. futures dropped while the dollar and Swiss franc strengthened.

Tensions with Kim Jong Il’s regime have risen in the past year after the sinking of the South Korean warship Cheonan in March killed 46 sailors. U.S. President Barack Obama this week dispatched envoy Stephen Bosworth to Asia after reports by a U.S. scientist that North Korea had revealed a “stunning” uranium-enrichment plant.

“They want to direct attention to themselves, to say: ‘Look we are here, we are dangerous and we cannot just be ignored,’” said Andrei Lankov, an associate professor at Kookmin University in Seoul. The U.S. position had been to engage in talks when there was a prospect of democratization in the North, he said. “Now the chances for democratization are virtually zero, so they have nothing to talk about.”

Stocks Fall

The MSCI Asia-Pacific excluding Japan Index declined 2.3 percent to 453.89 as of 8:06 p.m. in Hong Kong. The Standard & Poor’s 500 Index dropped 1.2 percent at 10:39 a.m. in New York. The dollar rose 1.3 percent to $1.3449 per euro at 10:06 a.m. in New York.

Obama was awakened at 3:55 a.m. for a security briefing on the attack, an administration official who requested anonymity said.

The U.S. condemned the North’s shelling and said it was “firmly committed” to defending South Korea, according to a statement released by the White House.

United Nations Secretary-General Ban Ki-moon, a former South Korean foreign minister, condemned the attack and called it “one of the gravest incidents since the end of the Korean War.” Ban, in a statement released in New York, said he was “deeply concerned” by the incident, which he blamed on North Korea, and urged “immediate restraint.”

China expressed “concern” over the North Korean shelling.

Contribute to Peace

“We hope the parties do more to contribute to peace and stability on the Korean Peninsula,” Foreign Ministry spokesman Hong Lei told reporters in Beijing today. Reports on North Korea’s new uranium-enrichment plant underscore the need for disarmament talks, Hong said.

“What is important is to restart six-party nuclear talks at an early date,” he said.

Sixteen more South Korean soldiers and three civilians were injured in the shelling, a Defense Ministry official said on condition of anonymity because of military policy. Joint Chiefs of Staff official Lee Hong Kee called the shelling, which began around 2:30 p.m. local time, an “intentional attack.”

Shin Seung Won, 70, who has been running a motel on Yeonpyeong for about 20 years, said by telephone: “I heard a sudden, roaring sound. I ran to the window and saw my neighbor’s house was burning and the neighborhood was covered in smoke.”

Artillery Fire

North Korea initiated the exchange of artillery fire, Bosworth, the U.S. envoy, told reporters in Beijing at a news conference after meeting with Chinese officials. The U.S. and China share the view that “such conflict is very undesirable,” and agreed that all sides should exercise restraint, Bosworth said.

North Korea accused South Korea of opening fire first and warned of more “merciless military attacks” if its territory is violated. The North Korean army’s Supreme Command made the statement in the official Korean Central News Agency.

South Korea yesterday kicked off a nine-day military exercise, which North Korea said today was aimed at attacking the country. The KCNA statement didn’t mention if North Korea suffered any casualties.

“The North Korean issue is a tinder-box for the region,” said Gavin Parry, managing director of Hong Kong-based Parry International Trading Ltd. “They like to saber rattle for attention, but on the heels of a nuclear inspection that indicated they could have bomb capabilities, markets can’t afford to ignore any instability for the region.”

Pentagon Action ‘Premature’

U.S. Defense Secretary Robert Gates is speaking with defense officials in South Korea, Pentagon spokesman Colonel David Lapan said. At this point, Lapan said it is “premature” to say the military is considering any action.

“Any incidents like this we view with concern,” Lapan said. “They certainly increase tensions on the peninsula.”

By attacking Yeonpyeong, 2 miles (3.2 kilometers) from the border, North Korea has escalated its provocations against the South and its U.S. ally, according to Kenneth Quinones, former State Department director of North Korean affairs, and a professor at Akita International University in Japan.

“This is one of the most serious North Korean provocations in at least two decades,” he said. The latest attack “was on a civilian-occupied island, unlike the Cheonan, which was a naval warship.”

North Korea may be trying to force a change in U.S. policy that has shunned talks with Kim’s regime until it ends provocations and lives up to commitments on ending its nuclear weapons program, Lankov said. The attack may also signal domestic instability as the ailing Kim seeks to cement the handover of power to his youngest son, Kim Jong Un.

Controlling Generals

“My gut feeling is that Kim Jong Il is having a very hard time controlling his generals,” Quinones said. “The North Korean military is asserting itself at a time when Kim is weak both physically and militarily. Kim Jong Un means nothing; he’s a puppet.”

Kim Jong Un made his public debut in September, when he was named a general and vice commissioner of the Central Military Commission, the nation’s most powerful body. Those were his first public appointments and were followed by a succession of appearances alongside his father.

Korea is laboring under United Nations sanctions over its two previous nuclear device tests. Attempts to force Kim’s regime back to disarmament talks have foundered after North Korea quit the six-party forum last year. The talks include the U.S., Russia, Japan, South Korea and China, the North’s main political ally and source of aid.

North Korea has a history of attacks on the South since the two sides fought to a standstill in their 1950-1953 civil war. China backed the North and the United States led an international force fighting on the side of the South, laying out a Cold War relationship that endures to this day.

U.S. Troops

The U.S. has about 25,000 troops in the South and Obama said during a Nov. 10 Veterans Day speech in Seoul that America’s resolve to stand alongside its ally will never waver.

Previous incidents have included the 1987 bombing of a civilian airliner that killed 115 people, two assassination attempts on the president and incursions by mini-submarines carrying commandoes.

At an emergency meeting of security-related ministers, South Korean President Lee ordered the military to “respond sternly, while making sure the situation doesn’t get aggravated,” his office said.

South Korea’s Unification Ministry canceled inter-Korean Red Cross talks scheduled to take place on Nov. 25.

“What can South Korea do apart from a bit of chest beating?” Lankov said. “They are not going to start a war. I think they will try to play it down.”

To contact the reporter on this story: Bomi Lim in Seoul at blim30@bloomberg.net

To contact the editor responsible for this story: Bill Austin at billaustin@bloomberg.net

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