SEOUL - North Korea has eased some curbs it placed on black market trading, the South's spy agency said on Thursday, rolling back part of what was widely seen as a policy blunder that caused unrest in the authoritarian state.

The North's impoverished citizens have increasingly turned to the black market for essentials not provided by the broken state distribution system after a famine in the late 1990s killed about five percent of the population.

Authorities had cracked down on the black market to stamp out smuggling and trading of food, resulting in angry consumers fighting security agents patrolling market places.

To quell public discontent, controls and the crack down on market places have been eased, a National Intelligence Service official said by telephone. Discontent is high.

North Korea late last year also implemented currency controls aimed at stamping out merchants who operate outside the centrally planned economy, which experts said sparked inflation and made it more difficult for the public to buy food.

News reports said this week that North Koreans were starving to death and unrest was growing as last year's revaluation caused prices to soar and also led to a senior ruling party official being sacked to take the blame.

The news comes as the destitute North is under growing pressure to end its boycott of international nuclear disarmament talks, where it can win aid for reducing the security threat it poses in economically vital North Asia.

Leader Kim Jong-il has replaced another party official who had acted as his personal finance manager because the man has been blacklisted by many governments, making it difficult for him to manage state firms that channel money to his boss.

The new official, a Workers' Party deputy director named Jon Il-chun, had been reported as accompanying Kim on inspection tours from this week, South Korea's Yonhap news agency said quoting sources familiar with the North.
The revaluation, dropping two zeros from its notes, was aimed at wiping out cash holdings of a burgeoning merchant class who risked exposure for illegal activities outside the centrally planned economy if they exchanged their old cash or deposited their cash.

The move was a further blow to the North's wobbly economy, already hit by U.N. sanctions imposed after its nuclear test last year to halt its lucrative arms sales.

An online news site that specialises on North Korea, Daily NK, said in a report that the easing of controls had led to a slight fall in staple food prices in the market place.

(Editing by Nick Macfie)