President Roh Moo-Hyun said the six-nation nuclear talks must become part of a "virtuous cycle" along with inter-Korean dialogue.

"The summit will be in harmony with the six-party talks and will be carried out in such a way that it expedites their success," he said in a speech marking the anniversary of Korea's liberation from Japan's 1910-45 colonial rule.

Roh said his meeting in Pyongyang with Kim Jong-Il from August 28-30 "will serve as an occasion to normalise inter-Korean relations that have gone through difficulties due to the North's nuclear programme."

He said it "will contribute to further solidifying peace and stability on the Korean peninsula while advancing common South-North prosperity."

The summit will be only the second ever between two nations still technically at war since the 1950-53 Korean conflict. The first in 2000 sparked a major increase in economic cooperation and people-to-people exchanges.

Roh said the North's nuclear programme was on the road to a solution and predicted that all six parties -- the two Koreas, the United States, China, Japan and Russia -- would honour a February deal.

The North has taken the first step by shutting its nuclear reactor which produced plutonium for nuclear weapons. If it declares and disables all facilities, it would get major international economic aid, normalised relations with the United States and a permanent peace deal on the peninsula.

Roh envisaged "epoch-making economic development" if a peace regime is established and the two Koreas join hands to usher in a new economic era.

The North's state-directed economy contracted for years after the loss of crucial Soviet aid in the early 1990s. But Roh said the country is changing and showing a "pragmatic and flexible" stance in talks with the South.

"With many North Korean regulations and organisational structures geared toward reform, awareness of the market economy has spread quickly among its citizens."

Roh said he would discuss the formation of an inter-Korean economic community during his summit.

"From now on, the two sides need to develop inter-Korean economic cooperation into productive investment collaboration and into two-way cooperation," he said.

"In this way the South will have more investment opportunities, while the North will have a chance to make an economic turnaround."

Former prime minister Lee Hae-chan, a key political ally of Roh, has said the meeting may reach agreement on large-scale projects -- such as new industrial complexes and tourism sites -- aimed at creating an economic boom in the North.

The current two main joint projects are the Kaesong industrial estate and the Mount Kumgang tourist resort, both funded by Seoul.

Roh said he does not plan to be "overly ambitious" in the upcoming talks or seek a historic turning point in relations.

"What matters most is the fact that the two sides have to bolster understanding and trust toward each other."

The conservative opposition Grand National Party accuses Roh of seeking the summit to boost the chances of his preferred candidate in December's presidential election.

It fears having to foot the bill for expensive joint projects if it wins the poll.

The president urged all parties to respect agreements made by previous administrations. "They should not maintain North Korea policies that are tantamount to retracting the agreements the Republic has made."