A body known as the Korea Taepung International Investment Group held its first board meeting to launch a state development bank, Pyongyang's official Korean Central News Agency reported late Wednesday

The bank will finance state projects "after being equipped with advanced banking rules and system needed for transactions with international monetary organisations and commercial banks", it said.

Leader Kim Jong-Il gave the order to set up the bank, the agency said.

Tougher United Nations sanctions imposed after missile and nuclear tests last year restrict the communist state's access to international credit.

The UN resolution passed last June calls on "all member states and international financial and credit institutions not to enter into new commitments for grants, financial assistance or concessional loans to (North Korea), except for humanitarian and developmental purposes directly addressing civilian needs".

The North's economy has been hit by the sanctions, which restricted its weapons exports. The nation has relied on foreign aid to feed its people since it suffered a devastating famine in the 1990s.

The UN could decide to ease or roll back the sanctions if there is substantial progress in six-party nuclear disarmament talks which the North quit last April.

The founding of the development bank "indicates that North Korean leader Kim Jong-Il firmly believes that six-party talks will produce a breakthrough", said Paik Haksoon, of Seoul's private Sejong Institute think-tank.

"The goal of reviving the economy -- with the help of the international community -- is too important for North Korea to abandon," Paik told AFP, adding he expects the North to return to talks soon.

Kim Yong-Hyun, an expert at Seoul's Dongguk University, said the North is unlikely to win access to international loans any time soon.

"But North Korea, in an indirect manner, is expressing its wish to settle the nuclear issue and thus revive its moribund economy for the people," he said.

Before returning to nuclear negotiations, the North demands an end to sanctions and early talks on a peace treaty to formally end the 1950-1953 Korean War.

The United States and South Korea say it must first return to the talks -- which group the two Koreas, the US, Russia, China and Japan -- and show it is serious about scrapping its atomic programmes.

In a policy-setting New Year editorial the North put great emphasis on what it called bringing about "a radical turn in the people's standard of living" in the impoverished nation.

This would be achieved by quicker development of light industry and agriculture, it said.

Leader Kim last month paid his first visit to the Rason free trade zone near the border with China. Parliament later upgraded its status as part of efforts to attract more investment in the faltering project.

The communist regime is also taking steps to strengthen its grip over the economy in the face of a nascent free market.

Late last year it announced a shock currency revaluation, wiping out the savings of many citizens, in what a central bank official called an attempt to strengthen "socialist principles and order in economic management".

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