No Sign of End to Korea Talks as Kim Steps Up Force Mobilization

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Markets React to Korean 'Almost-War'

Talks between North Korea and South Korea on how to lower tensions continued into the early hours of Monday, as Kim Jong Un stepped up the mobilization of his forces.

Neither side showed any indication of when the meeting between Kim’s top military aide Hwang Pyong So and South Korean President Park Geun Hye’s chief security adviser Kim Kwan Jin, which began at 3:30 p.m. on Sunday, might end. It follows a 10-hour session between the officials earlier in the weekend.

As the dialog went on at the border village of Panmunjom, a South Korean military official said North Korea had dispatched more than two thirds of its submarines from ports and doubled its front-line artillery forces.

The standoff, with both countries’ forces on a high alert for any possible military clashes, is one of the most serious since Kim became Supreme Leader in late 2011. An uneasy truce on the peninsula is periodically disrupted by exchanges of rockets or gunfire that peter out before they escalate, though the unpredictable regime in Pyongyang keeps tensions high.

Tensions have escalated in recent weeks across the DMZ that bisects the peninsula more than 60 years after the Korean War. Two South Korean soldiers were injured Aug. 4 by land mines that the government in Seoul said were recently laid by North Korea. North Korea denied setting the devices.

South Korea retaliated for the mine blasts by resuming propaganda broadcasts through loudspeakers for the first time since 2004. North Korea views any criticism of its leader as an offense to the nation and restricts the flow of information about the outside world.

South Korea said Thursday North Korea fired shells into its territory, and responded with a barrage of artillery.

‘Provocations’

“Raise the stakes and seize the initiative, that is, leave the big powers hanging and eager for negotiations in the face of provocations -- that’s Pyongyang’s time-tested mode of operation,” Lee Sung-Yoon, a professor of Korean studies at Tufts University, said by e-mail.

Park refused to accept Kim’s demand on Thursday that South Korea stop propaganda broadcasts across the demilitarized zone within 48 hours or face dire consequences.

North Korean troops are eagerly awaiting an order “to inflict a shower of fire” on their foes, North Korea’s official Korean Central News Agency said Sunday. South Korea is continuing the broadcasts, according to its defense ministry.

Kim declared a “semi-state of war” and ordered his front-line troops into a “wartime state” over the broadcasts earlier this week. The U.S. and South Korea scrambled eight fighter jets on Saturday in a show of force, while their top generals agreed in a phone call to respond “strongly” to any North Korean attack, according to Colonel Jeon Ha Kyu, a spokesman for South Korea’s Joint Chiefs of Staff.

South Korea’s central bank is closely watching the results of the talks and will hold a meeting Monday on the situation, it said in an e-mailed statement on Sunday.

The iShares MSCI South Korea Capped ETF, the largest exchange-traded fund tracking the country’s stocks, had the biggest weekly withdrawal since inception in 2000 amid investor concern over a revival of tensions on the Korean peninsula and an escalating sell-off in emerging markets.

Traders pulled $195.4 million from the ETF, whose top holdings include Samsung Electronics Co. and Hyundai Motor Co., in the five trading days ended Aug. 21, according to data compiled by Bloomberg.

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