Acording to Reuters, Herskovitz - Analysis SEOUL dated, Fri Mar 26, 2010 12:25pm EDT:

The Seoul government has called an emergency meeting of senior cabinet ministers.

The North will not escalate tensions to the state of war, which would be a suicidal move for leader Kim Jong-il because his ill-equipped army would be no match for the advanced militaries of South Korea and its biggest ally the United States.

* If the North did attack the South's ship, the likely reason would have been to raise tension ahead of its return to the nuclear talks. The North often rattles sabers ahead of major diplomatic meetings to alarm its dialogue partners in the hope that they would be more willing to make concessions in return for Pyongyang reducing its military threat to the region.

* Military grandstanding by the North usually only has a temporary impact on markets, with investors saying it would take the threat of war to cause real and lasting impact.

* North Korea risks further hits to its economy by an attack on the South. Its nearly bare coffers have been further depleted by U.N. sanctions imposed after a nuclear test in May while a botched currency revaluation at the end of last year added to its woes and sparked rare civil unrest.

* A North Korean attack on the South strengthens Kim's standing at home among the country's powerful military. This could help him reshuffle cadres or perhaps clear the way for his youngest son to be named heir of the communist dynasty when the North's parliament holds its annual meeting on April 9.

* The North may follow the attack with other sorts of military grandstanding that could include missile launches or even another nuclear test.

* If Pyongyang goes too far, it could be hit by U.S. Treasury measures that would virtually cut off its meager international finances. This would deal a major blow to Kim who needs hard cash to win the support of cadres for his succession plans and to pay for an ambitious program lauded in his state's media to build a "strong and prosperous" nation by 2012.

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South Korea says not clear North involved in ship sinking. A South Korean naval ship was sinking on Friday night with more than 100 people on board, but officials played down earlier suggestions that it may have been the result of an attack by North Korea.

"It is not clear whether North Korea was involved," Presidential Blue House spokeswoman Kim Eun-hye told Reuters.

The Joint Chiefs of Staff also said it could not conclude that the reclusive North was behind the attack.

Earlier, South Korean media had quoted officials as saying the North could have torpedoed the ship near the disputed western sea border that separates the two Koreas.

The sinking comes as the impoverished North has become increasingly frustrated by its wealthy neighbor, which has given the cold-shoulder to recent attempts to reopen a lucrative tourist business on the northern side of the Cold War's last frontier.

It also coincides with mounting pressure on Pyongyang to call off a more than one-year boycott of international talks to end its efforts to build a nuclear arsenal.

The presidential office had earlier also said a South Korean vessel had fired at an unidentified vessel in the North.

The government held an emergency security meeting following the incident, Yonhap news agency said.

The ship was sinking near the disputed Yellow Sea border off the west coast of the peninsula which was the scene of two deadly naval fights between the rival Koreas in the past decade.

Local media reports said at least 59 South Korean sailors survived the attack and an unknown number appeared to have been killed or are missing. A rescue operation was under way.

Navies from the rival Koreas exchanged gunfire for the first time in seven years in the Yellow Sea waters in November, damaging vessels on both sides.

The international community has been pressuring the North to give up efforts to build nuclear weapons, promising help for its broken economy if it does so.

There has been widespread speculation that North Korea's iron ruler, Kim Jong-il, was about to visit China, his only significant ally and on which he has depended almost entirely for economic aid after a new conservative government in Seoul effectively ended years of free-flowing assistance.

In Washington, U.S. Secretary of State Hillary Clinton said a nuclear arms reduction treaty announced with Russia earlier in the day showed states like North Korea that non-proliferation was a top priority for Moscow and Washington.

Strengthening the Global Leadership under the Nuclear Non-Proliferation Treaty to stop the spread of these weapons, and to ensure that other nations meet their own responsibilities.

President Obama and President Medvedev agreed to meet in Prague, the Czech Republic, on Thursday, April 8, to sign the Treaty between the United States of America and the Russian Federation. This was the 14th meeting and shared commitment to “reset” U.S.-Russia relations which shows the mutual interest along many dimensions.