By Kim Do-gyun
YEONPYEONG, South Korea (Reuters) - North Korea said it would not react to "reckless" military drills by the South on Monday, despite an earlier threat to retaliate, and CNN reported that Pyongyang had agreed to the return of nuclear inspectors.
Air-raid bunkers on the South Korean island of Yeonpyeong shook during the live-fire artillery exercise, which went on for just over 90 minutes, but the North Korean guns that had shelled the island after a similar drill last month stayed silent.
"The revolutionary armed forces of the DPRK did not feel any need to retaliate against every despicable military provocation," the official KCNA news agency said, quoting a communique from the North's Korean People's Army Supreme Command that dismissed the drills as a "childish play with fire."
The U.N. Security Council was deadlocked in its efforts to ease tensions on the Korean Peninsula, but North Korea's refraining from retaliation and the nuclear offer reportedly made to U.S. trouble-shooter Bill Richardson offered some breathing space.
"The situation is very tense," Russian Foreign Minister Sergei Lavrov told reporters in Moscow. "There can be no optimism in this situation."
The United States, in a measured response, said the North's decision not to retaliate simply showed it was behaving "the way countries are supposed to act."
"The South Korean exercise was defensive in nature. The North Koreans were notified in advance. There was no basis for a belligerent response," State Department spokesman P.J. Crowley said in an emailed statement.
The United States did not immediately respond to the report of North Korea's latest nuclear offer.
South Korean financial markets took the day's events in their stride, recovering from early falls, but international investors remained concerned, with the cost of insuring South Korean sovereign debt for five years rising 10 percent.
The mercurial North had threatened it would strike back if its neighbour went ahead with the live-fire exercise.
On November 23, North Korean artillery had shelled Yeonpyeong, close to the disputed maritime border off the west coast of the Korean Peninsula, killing four people, in the worst attack on South Korean territory since the Korean war ended in 1953.
"It's a perfectly natural thing for a sovereign nation and a divided country to conduct military exercises to defend its territory in the face of military conflict," South Korean President Lee Myung-bak said in a statement.
Monday's artillery exercise came hours after a U.N. Security Council meeting on the Korean Peninsula crisis ended in an impasse, with Russia and China resisting an explicit condemnation of the North for last month's attack.
POTENTIAL BREAKTHROUGH
But amid the gloom, New Mexico Governor Richardson, visiting Pyongyang to try to ease tensions, won agreement from North Korea to allow U.N. nuclear inspectors to return, according to CNN, which has a team travelling with him.
Pyongyang "agreed to allow International Atomic Energy Agency personnel to return to a nuclear facility in the country and agreed to negotiate the sale of 12,000 ... fuel rods and ship them to an outside country, presumably to South Korea," CNN said, quoting correspondent Wolf Blitzer in Pyongyang.
The South Korean Foreign Ministry said it could not confirm any agreement.
"We do not have the specific details yet, so it is too early to make an official evaluation," a spokesman said.
Richardson was visiting in an unofficial capacity, the traditional means of communication between the two sides, but it was unclear whether the reported agreement meant real progress, particularly given Pyongyang's poor record of honouring deals.
(Additional reporting by Jack Kim, Yoo Choonsik and Jeremy Laurence in Seoul, Louis Charbonneau at the United Nations, Chris Buckley in Beijing, Frederik Dahl in Vienna and Andrew Quinn in Washington; writing by Andrew Marshall and Alex Richardson; editing by Ron Popeski and Mohammad Zargham)
