North Korean funds that had been frozen in a Macau bank account for nearly two years will soon reach Pyongyang and that should spur inspections of the North's nuclear sites, U.S. envoy Christopher Hill said.

US Assistant Secretary of State Christopher Hill speaks to the media in the Mongolian capital of Ulan Bator June 16, 2007. North Korean funds that had been frozen in a Macau bank account for nearly two years will soon reach Pyongyang and that should spur inspections of the North's nuclear sites, Hill said.[Reuters]

Speaking late on Friday, Hill told reporters in the Mongolian capital of Ulan Bator that some $20 million of North Korean funds that had held up a disarmament deal struck in February is on its way to North Korea by way of the Russian banking system.

The funds would "be in the North Korean account very soon," said Hill, who had traveled to Mongolia to attend a conference.

"I would expect (North Korea) to undertake their obligations as agreed in the February meeting," he added.

Hill said that as soon as North Korea receives the funds, Pyongyang could allow inspections by the International Atomic Energy Agency (IAEA), as stipulated in a February 13 agreement following six-party talks involving the two Koreas, the United States, China, Japan and Russia.

South Korea's Yonhap news agency on Saturday quoted diplomatic sources as saying the BDA funds had reached the Russian central bank but had yet to be sent along to the Russian bank in which Pyongyang has an account.

"The transfer is expected to be completed by early or mid-next week, considering the due process," said Yonhap, quoting a source familiar with the situation.

Kyodo news agency later quoted Hill as saying technical problems have occurred regarding the transfer.

"I've heard that some technical problems have occurred within Russia," Kyodo quoted Hill. No further details were given.

All parties had also agreed to an April 14 deadline to close North Korea's reactor, which was missed when Pyongyang insisted it first receive the money that had been sitting in a Banco Delta Asia (BDA) account in Macau.

Hill, who denied reports he may meet North Korean officials during his trip to Mongolia, also expressed hope a fresh round of six-party talks could get under way soon.

Talks would probably take place "very soon" after the funds had reached North Korea, said Hill, who will be visiting Beijing Seoul and Tokyo next week to discuss reconvening the six-party meeting.

Far from announcing plans to dismantle its nuclear weapons program, North Korea warned on Friday it would "bolster its deterrent for self-defense," and lashed the United States for conducting an arms race.

North Korea made no mention of the BDA funds. Instead, its official KCNA news agency railed against a U.S. plan for a chain of missile defense systems around the world and its "hard-line hostile policy" towards Pyongyang.

"The U.S. ever-more undisguised row of finding fault with the DPRK (North Korea) and the arms race escalating in the areas around Korea due to the U.S. moves will only force the DPRK to bolster its deterrent for self-defense," it said.

Meanwhile, Chun Yung-woo, South Korea's chief envoy to six-country talks on ending the North's nuclear program, was quoted the Yonhap news agency as saying the BDA dispute was just the first obstacle to implementing the February 13 deal.