"We will agree on things that can be agreed on, and for things that are hard to agree on, we will put them aside and take time," Kim Young-tak, Seoul's delegation chief, told the Yonhap news agency before the talks.

Source of funds

The South Korean-funded Kaesong complex is a significant source of foreign currency for the impoverished North, which received $26m last year in wage payments.

Kaesong industrial park

  The park opened in June 2003 located near the North Korean city of Kaesong, about 70km northwest of Seoul, the capital of South Korea

About 100 South Korean firms have set up factories in the park, mostly to assemble products using cheap North Korean labour

About 38,000 North Koreans work in the park producing or assembling items such as textiles, watches and cosmetics cases

Minimum monthly wage of $75 is paid to the North Korean state and not directly to workers

At the first round of talks last month, South Korean officials were stunned when the North demanded a wage rise for its 40,000 workers to $300 a month from the current $75.

It also demanded an increase in rent for the estate to $500m, compared with the current $16m for a 50-year contract.

At the second round of talks the North stuck to its financial demands but offered to lift restrictions on border crossings it imposed last December.

The future of Kaesong has become increasingly uncertain as inter-Korean relations have worsened and as the North's nuclear standoff with the world has intensified.

Adding to those tensions on Thursday, South Korea's JoongAng Ilbo newspaper reported that North Korea is "highly likely" to conduct missile tests early this month, citing an unidentified intelligence source.

But the South's Yonhap news agency carried a conflicting report hours later, saying there were no signs of any imminent missile launch.

Seoul's priority in the discussions is the case of a South Korean worker at Kaesong who has been held by North Korea since March 30.

The North has refused to grant access to the man, who is accused of slandering its political system and of trying to incite a local woman worker to defect.

Dormitory offer

South Korea has offered to build a dormitory and a nursery for North Korean workers, mostly women in their 20s and 30s. But it rejects the wage and rent demands as excessive.
Representatives of the 105 South Korean firms at Kaesong say many of them are already close to bankruptcy because of falling orders.

So far, 89 of the firms have incurred combined cumulative losses of $31m, they said last week, calling for the South Korean government to provide urgent loans.

The companies' operations have not been helped by intermittent border closures restricting access to the factories and the expulsion of some South Korean staff.