* North proposes working-level military talks
* Series of conciliatory gestures indicate ties improve
* North's ruling party conference likely delayed by floods (Adds U.S. envoy)
By Jeremy Laurence
SEOUL, Sept 16 (Reuters) - Reclusive North Korea has proposed holding working-level military talks with rival South Korea, the Defence Ministry in Seoul said on Thursday, in a further sign of an easing in tensions on the divided peninsula.
The two Koreas have been in a stand-off since Seoul, with Washington's backing, accused Pyongyang of torpedoing its warship in March, killing 46 sailors. The North denies the charge.
The apparent thaw in ties comes as the North struggles to deal with the impact of months of flooding on its already weak economy and prepares for political succession as the health of leader Kim Jong-il deteriorates.
Diplomats said on Wednesday that a conference of the Workers' Party, which was meant to bring together the North's political elite for first time in 30 years, had probably been postponed, due to what the South said were "internal problems". [ID:nTOE68E01A]
Some diplomats and an aid group have said the most likely cause for the delay was flooding, although media reports have also speculated Kim's health or disagreements over a reshuffle of the power structure could be holding up the start. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
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Heavy rain in the impoverished state over the past two months has hit food production that even in a good year falls a million tonnes short of the amount needed to feed its 23 million people.
The North proposed that the two sides discuss the Northern Limit Line, the de facto sea border off their west coast, and Seoul's plan to fly anti-Pyongyang leaflets into the North, a Defence Ministry official said.
Such talks have not been held since the warship sinking.
News of the proposal came as the United Nations Command (UNC) and the North Korean military were due to conduct a fifth-round of colonel-level meetings at the border truce village Panmunjom on Thursday.
The UNC said the meetings were being held to discuss the date, agenda and protocols for general-level talks on armistice issues related to the sinking of the Cheonan corvette in March.
SHIFT AFTER CHINA TRIP
Seoul and Washington responded to the sinking of the Cheonan by staging a series of intimidating joint military exercises off the peninsula, and by squeezing the North's already crumbling economy with tougher sanctions.
The allies have resisted calls by Beijing for the resumption of six-way disarmament talks on the North's nuclear programme, saying it was up to Pyongyang to show it is genuinely committed to dialogue and cutting tensions.
"As part of the process of re-engagement, there has to be a reengagement on the South-North axis as well, and I think there is some reason to be somewhat optimistic that at least part of that has begun," U.S. envoy Stephen Bosworth said in Beijing.
Pyongyang threatened to retaliate with force and fired a barrage of artillery off its coastline toward a maritime border, but there have been signs of a thaw since Kim's surprise trip to ally China last last month.
Analysts say Kim went to China in search of economic aid for his cash-strapped economy -- still reeling from botched currency reform late last year that triggered inflation and wiped out ordinary people's savings -- and to win political support for his son Kim Jong-un's succession.
Seoul this week announced its first substantial aid package to its destitute neighbour in more than two years after months of severe flooding that has killed dozens, destroyed thousands of homes and devastated farmland. [ID:nTOE68E055]
The neighbours also agreed to meet in the North Korean border town of Kaesong on Friday to discuss a resumption of reunions of families separated by war.
The apparent thaw has prompted the start of shuttle diplomacy between regional nuclear envoys, fuelling speculation of a resumption in aid-for-disarmament talks. (Additional reporting by Jack Kim in Seoul and Ben Blanchard in Beijing; Editing by Jonathan Thatcher and Sanjeev Miglani)
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