By Andrew Quinn and Phil Stewart
SEOUL (Reuters) - The United States on Wednesday announced new sanctions against North Korea, targeted against its leadership, and warned of serious consequences if it again attacked the South.
Relations across the divided peninsula have turned increasingly hostile after South Korea accused the North of sinking one of its warships in March, killings 46 sailors.
U.S. Secretary of State Hillary Clinton said Washington was ready to return to international talks over North Korea's nuclear weapons programme if Pyongyang sent a "positive signal," but that there had been none so far.
She said the sanctions aimed to prevent North Korea selling arms and from procuring luxury goods, as well as to put out of business North Korean entities operating illicitly overseas.
"We are aiming very specifically, after much intensive research built on what was done before but not limited to that, to target the leadership, to target their assets," Clinton told a news conference in Seoul with U.S. Defence Secretary Robert Gates after a visit to the demilitarised zone dividing the peninsula.
She insisted the additional sanctions were not aimed at ordinary North Koreans, who make up one of the world's poorest societies and whose stumbling economy is already largely sealed off from the outside world because of previous punishments over nuclear and missile tests.
China, the North's only major ally, expressed "deep concern" after the United States and South Korea said they would start large-scale joint military drills on July 25. State television on Tuesday showed the Chinese navy conducting its own exercises.
"We urge relevant parties to remain calm and exercise restraint and not do anything to exacerbate regional tensions," Chinese Foreign Ministry spokesman Qin Gang said in a statement.
Gates called for a resumption of military-to-military ties with China, suspended earlier this year over planned U.S. arms sales to Taiwan.
North Korea denounced the exercises -- state television said citizens were "enraged," and the official KCNA news agency accused Washington and Seoul of planning an invasion.
"The puppet warmongers declared that the projected military manoeuvres, the largest in the history of naval military exercises, are aimed to tighten the 'alliance' for invading the DPRK," the news agency said in an English-language report.
North Korea's economy is mainly subsistence in nature with few factories able to operate at even a third their capacity and farms lacking fertilizer and seed. A disastrous decision to issue a new currency last year cost many their life savings and many North Koreans conduct illicit business by travelling to China.
"The sanctions announced by the U.S. will not really affect the North Korean economy as all possible sanctions have already been imposed," said Paik Haksoon, a senior fellow at the Sejong Institute. "China is cooperating with North Korea ... because the stability of North Korea is a key national interest of China."
Paik said North Korea's leader, Kim Jong-il, was unlikely to change his policies or compromise with the United States.
TORPEDO ATTACK
The South Korean and U.S. foreign and defence ministers warned of "serious consequences" if there were any future North Korean attacks against the South.
A South Korean-led investigation team concluded a North Korean submarine fired a torpedo which sank the South Korean corvette Cheonan in March. North Korea denied it had anything to do with the Cheonan's sinking.
Clinton and Gates made an unusual joint visit to the heavily defended demilitarised zone (DMZ) that divides the two Koreas amid a warning the peninsula faced a dangerous new period.
Nearly 2 million troops flank a 4-km (2.5 miles) wide strip of land that has kept the two Koreas apart for nearly 60 years and is one of the last relics of the Cold War.
Clinton said the North could have what it wants -- a peace treaty, normal relations with the United States and an end to sanctions -- if it ended its belligerence and took irreversible steps to end attempts to build atomic weapons.
"North Korea can cease its provocative behaviour, halt its threat and belligerence towards its neighbours, take irreversible steps to fulfil its denuclearisation commitments and comply with international law," Clinton said.
"If North Korea chooses that path, sanctions will be lifted, energy and other economic assistance will be provided, its relations with the U.S. will be normalised."
"DANGEROUS PERIOD"
The retired general nominated by U.S. President Barack Obama to be his intelligence chief said on Tuesday that the sinking of the Cheonan may herald a "dangerous new period" of direct attacks by Pyongyang on the South.
The warning by James Clapper at his Senate confirmation hearing for director of national intelligence put a spotlight on growing concern within the U.S. intelligence community and the Pentagon about what they see as the North's increasingly unpredictable behaviour.
The concerns coincide with worries about the health of iron ruler Kim Jong-il, who appears to be trying to engineer the succession for his youngest son as leader of one of the world's most isolated countries, which has been pressing ahead with efforts to develop a nuclear arsenal.
North Korea has repeatedly argued that it has no choice but to build a nuclear deterrent in the face of U.S. aggression. Analysts say Kim uses the constant threat of war as justification to focus on maintaining one of the world's largest standing armies while the economy falls into near ruin.
"In the 20 years since I last climbed that observation tower and looked out across the DMZ, it's stunning how little has changed up there and yet how much South Korea continues to grow and prosper," said Gates. "The North, by contrast, stagnates in isolation and deprivation."
(Additional reporting by Brett Cole, Jack Kim and Yeojung Chang; Writing by Jonathan Thatcher; Editing by Alex Richardson)
