South Korean President Lee Myung-bak on Monday labelled North Korea's artillery attack on a west coast island a crime against humanity and said the South would retaliate against any further provocation.
Lee, under pressure at home for his indecisive response to last week's attack, made his first address to the nation as US and South Korean war ships took part in military manoeuvres, prompting concern in regional power China and threats of all-out war from North Korea.

"North Korea will pay the price in the event of further provocations," Lee said. "Attacking civilians militarily is an inhumane crime that is strictly forbidden in a time of war... Now is the time to show action, not a hundred words."

Clashes in disputed waters off the west coast are not uncommon, with dozens of sailors killed and warships sunk over the past 11 years, but Tuesday's attack was the first time a residential area was hit. Of the four killed, two were civilians.

The attack raised tensions on the peninsula to their highest level in at least two decades, but experts say they are unlikely to tip over into a full-scale war.

Moody's Investors Service said uncertainty over confrontations have already been factored into South Korean credit ratings and the recently increased tensions would not immediately affect the ratings.

But the agency said the heightened tension may increase "event risk" and that it was still determining whether the recent attacks marked a fundamentally more reckless stance by North Korea.
Markets in Seoul mirrored the broader region on Monday, as players judged the latest spat as being no worse than previous clashes between the Koreas, who are still technically at war having only signed a truce to stop fighting in the 1950-53 war.

China has proposed emergency talks amid global pressure on Beijing to be more aggressive in helping resolve the standoff between the rival Koreas and try to rein in ally Pyongyang which depends on China for aid.

Washington and Tokyo were non-committal, saying they would consult with Seoul, which was sceptical of the proposal to sit down with North Korea, effectively rewarding it for bad behaviour.

The reclusive North was previously offered massive aid in return for disarmament pledges that went unmet. A senior North Korean official also expressed scepticism about the Chinese call, Japan's Kyodo news agency said. North Korea has yet to issue an official response but the official, speaking on condition of anonymity, said countries "responsible for (the latest standoff)" should first hold talks.

Beijing is wary of the collapse of North Korea, which could send millions of refugees across its border and strengthen the US-South Korea alliance in a possibly combined Korea.

The whistle-blowing Wikileaks website, revealing a cache of US diplomatic cables, said there had been talks between US and South Korean officials about the prospects for a unified Korea, according to the New York Times.

South Korea considered commercial inducements to China to "help salve" Chinese concerns about living with a reunified Korea, according to the American ambassador to Seoul, the newspaper said.
In the South Korean capital Seoul, dusted in snow, life and business went on as normal despite the raised tensions.

Authorities lifted a ban on South Korean travel to the joint Kaesung industrial complex in North Korea for the day.

"It feels a little more strained than previous occasions, but we've been here before," said Tom Brown, 42, a Briton working for the Tesco supermarket chain in Seoul. "It's just sabre-rattling ... there's not much point in worrying too much."

Source: Reuters