South Korea welcomed expanded U.S. financial sanctions against North Korea on Tuesday, but made its first large-scale offer of aid to its destitute neighbour since the sinking of one of its warships in March.

President Barack Obama broadened financial sanctions on North Korea on Monday and froze the U.S. assets of four North Korean citizens and eight firms in part to punish the diplomatically isolated state for the sinking of Cheonan corvette which killed 46 sailors.

U.S. officials hope the measures, which target North Korean entities that trade in conventional arms and luxury products and that counterfeit U.S. currency, will also sharpen pressure on the North's leader Kim Jong-il to abandon his nuclear programmes.

Washington views the atomic capabilities of the North, which tested nuclear devices in 2006 and 2009, as a threat to its allies South Korea and Japan, and as a proliferation risk.

Pyongyang has said it wants to restart stalled nuclear disarmament talks, but both Seoul and Washington insist it accepts responsibility for the sinking of the Cheonan before they engage in dialogue.

A foreign ministry spokesman in Seoul welcomed the toughened U.S. sanctions. It can be assessed that the U.S. sanctions regime on North Korea has been completed overall, he said.

At the same time, Seoul made a conciliatory gesture to Pyongyang by offering 10 billion won ($8.4 million) in aid to its flood-hit neighbour.

The offer, if accepted by Pyongyang, would be the first large scale aid from Seoul after the sinking of its warship that the South blames on a submarine attack by the North.

Heavy rains in July and August hit the North's northern region bordering China and its eastern provinces, forcing thousands from their homes and putting farmland under water.

President Lee Myung-buk also reflected positively on a surprise visit by Kim Jong-il to China, echoing calls by Chinese President Hu Jintao for the North to embrace Chinese-style economic reforms.

There will be many opportunities to see the Chinese way of development, which will give a positive influence on the North Korean economy, Lee told a cabinet meeting on Tuesday.

NEW SANCTIONS

The new U.S. sanctions steps aim to target the leadership of the isolated, authoritarian nation, which is preparing for a key party conference that analysts say could nail down succession plans, involving Kim's youngest son, Kim Jong-un.

U.S.-North Korean relations have deteriorated since Obama took office, with his aides deeply unhappy about Pyongyang's decision to conduct its second nuclear test last year as well as the sinking of the Cheonan.

Obama's order said North Korea's actions had destabilised the Korean peninsula and constituted an unusual and extraordinary threat to U.S. interests.

U.S. analysts said the timing of the U.S. sanctions announcement was not necessarily related to Kim's visit to China, which is his country's only major ally and is seen as anxious to resume multilateral talks on North Korea's nuclear program.

Kim hopes to maintain close communication and coordination with China to promote an early resumption of the six-party talks and ease tensions on the Korean peninsula, Chinese state television said, referring to the nuclear talks.

Political analysts said Kim's words appeared intended to ease tensions after the sinking of the South Korean ship, but noted many obstacles to resuming the six-party talks aimed an ending Pyongyang's nuclear weapons development.

At least verbally, this is a significant shift, but we will have to observe just what he means by six-party talks. It may be that North Korea's concept for them differs from other sides', said Zhang Liangui, an expert on North Korea at the Central Party School, a prominent state institute in Beijing.

(Additional reporting by Arshad Mohammed in Washington; editing by Miral Fahmy)

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