SEOUL - North Korea was preparing to fire a fresh barrage of short-range missiles, a report said on Tuesday, in a move seen as an attempt to boost its bargaining position ahead of expected talks on ending its nuclear weapons program.

Analysts say the missiles serve as a reminder of the North's ability to rattle regional security, but were not enough to halt growing momentum for dialogue after the reclusive state announced it was willing to head back to the negotiating table.

Yonhap news agency quoted a government source as saying the North had fired five short-range missile off its east coast on Monday and that there were indications of more to come.

There have been indications that the North is getting ready to fire short-range missiles from the west coast, the source was quoted as saying.

North Korea has issued a warning for vessels to stay out of its coastal waters during daylight hours from October 12-16, Japan's coastguard said.

But less than a day after the North rattled the region with its first missile launch in about three months, it also agreed to hold talks with the South on inter-Korean issues, indicating it had not shut the door to dialogue.

The missile reports helped send shares down in early trading in Seoul with investors saying concerns about security weighed on sentiment.

China, the closest the North can claim as a major ally, sees the launch as having little impact on efforts to resume now dormant six-country nuclear talks hosted by Beijing.

I believe this won't affect the trend toward easing (tension) on the Korean peninsula, a Foreign Ministry spokesman said.

Japanese Prime Minister Yukio Hatoyama expressed greater concern, saying of the launch: If it is true, then it is very regrettable.

U.S. Secretary of State Hillary Clinton, speaking on Monday, said Washington would continue its efforts to end nuclear weapons on the peninsula.

South Korean officials played down the launches, saying these were often part of routine military drills.

The missiles are identical to the ones that had been fired numerous times in the past, so we don't believe there will be problems on holding talks, which will go ahead, Unification Ministry spokesman Chun Hae-sung said.

TALKS WITH THE SOUTH

Analysts said the launches were less a security threat than an attempt to gain the upper hand in negotiations.

Bilateral, and possibly multilateral, talks with North Korea are coming up soon, and North Korea is playing all its cards before they happen, said Koh Yu-hwan, an expert on the North's negotiating tactics at Dongguk University in Seoul.
A South Korean admiral told a parliamentary hearing the missiles launched appear to be an upgraded version of the North's KN-02 short-range missiles with an extended range of up to 160 km (100 miles).

The launch coincided with the arrival of U.S. aircraft carrier George Washington off the South Korean coast. The North usually protests against such visits as a prelude to war.

The launch came about a week after North Korean leader Kim Jong-il said Pyongyang was ready to return to the talks on ending its nuclear arms program, though he called for direct talks with the United States before his country could head back to the six-way discussions.

Separately on Tuesday, the North accepted a proposal by the South for working-levels talks on preventing flooding in a major river flowing across their armed border, where a surge of water released by the North killed six people in the South last month.

The North also agreed to hold Red Cross talks on arranging reunions for families separated by the 1950-1953 Korean War, a move that could help warm relations between the two Koreas.

The Unification Ministry said the talks would likely take place this week.

The North has hundreds of short-range range missiles, with the ability to strike the South Korean capital Seoul and its sprawling urban surroundings which are home to around 25 million people.

(Additional reporting by Jon Herskovitz and Christine Kim in Seoul and Chris Buckley in Beijing; Editing by Jonathan Thatcher and Alex Richardson)

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