China Premier Wen Jiabao made a new overture to Taiwan on Thursday, saying Beijing was ready to create the conditions needed to reach a peace agreement with the neighboring self-ruled island China claims as its own.

China was also willing to hold talks with Taiwan on military issues, Wen said in the text of a speech given to parliament.

Wen's comments -- while not representing a major breakthrough in cross-strait political relations and Beijing's one-China principle -- underscore the warming of ties since China-friendly Taiwan President Ma Ying-jeou took office last May.

Any peace pact would benefit both sides, Taiwan's government said, but added that the recession-hit island wanted economic agreements with its massive trade partner before political ones.

A peace deal has advantages for both sides, said Tony Wang, a spokesman for Ma. But our thought is first to seek economic deals and political ones later.

China has claimed sovereignty over Taiwan, its one-China policy, since the end of the Chinese civil war in 1949 when defeated Nationalist forces fled to the island. It has vowed to bring the island under mainland rule, by force if necessary.

Cross-strait relations have embarked on the track of peaceful development, Wen said in the text of his speech, delivered on the first day of China's annual parliament meeting.

... We will work on the basis of the one-China principle to enhance mutual political trust between the two sides.

... We are also ready to hold talks on cross-strait political and military issues and create conditions for ending the state of hostility and concluding a peace agreement between the two sides of the Taiwan Strait.

Ma has advocated a peace deal since his election.

Wen's words helped boost Taiwan stock and forex markets, as shares closed up 2.11 percent on the day and the currency, which has declined 6.39 percent against the dollar since the beginning of the year, was up fractionally as of mid-afternoon.

Not just for Taiwan, but for markets all over the world, this was good news, said Cheng Cheng-mount, an economist at Citigroup in Taipei. For Taiwan, it's in line with expectations as the Taiwan government has taken this path for a while.

ONCE ON BRINK OF WAR

Tensions have brought China and Taiwan intermittently to the brink of war over the last six decades in what is considered potentially one of the most dangerous flashpoints in Asia.

But building on better ties since Ma took office, the two sides have launched direct daily passenger flights, new shipping routes and postal links.

Wen did not elaborate on talks on political and military issues, but they could include military confidence building, Chinese military vessels making port calls on Taiwan ports and vice versa.

Chinese President Hu Jintao said in December that both sides could have military exchanges.

Beijing was serious about a peace deal, said Lin Chong-pin, a strategic studies professor at Tamkang University in Taiwan.

I think Beijing means it, and not only Wen Jiabao, Lin said. Beijing wants to incorporate Taiwan into its influence. It's a comprehensive integration objective.

Taiwan officials say political issues must be shelved at least until 2010 because of anti-China sentiment among the democratic island's population. China's top negotiator faced violent protests during his first visit to Taiwan last year.

Wen's remarks come when Taiwan is increasingly reliant on China amid the global economic slump, which has also sapped trade and investment. China is the island's largest trading partner and their two-way trade is worth more than $130 billion a year.

Taiwan has been hit by record falls in exports, a historic high jobless rate and prospects of a long recession.

China's parliament is set to approve military spending for 2009 of 480.7 billion yuan ($70.2 billion), up 14.9 percent on 2008, and a lot of that spending is focused on Taiwan.

China raised the number of short-range missiles aimed at the island off its coast to about 1,500, Taiwanese officials and experts said last month, a sign of continued distrust despite the warming of ties.

China Citigroup