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By Alexei Anishchuk
MOSCOW (Reuters) - Russia and Japan said on Monday they would revive talks on ending a territorial dispute that has prevented them signing a treaty to formally end their World War Two hostilities and, wary of China's growing influence, agreed to thicken trade ties.
At the two G8 powers' first Moscow summit for 10 years, President Vladimir Putin and Prime Minister Shinzo Abe had China's economic and political might in mind as they launched a new effort to warm up their relationship.
An end to the dispute over four Pacific islands is not in sight, but reviving long-stalled talks is a first step to improving economic cooperation, which both sides say has failed to live up to its full potential.
"We have agreed to revive talks (on the islands)," Putin told a news conference with Abe after a Kremlin ceremony at which about 20 economic cooperation agreements were signed, but said this did not mean the issue would be resolved "tomorrow".
Abe acknowledged the sides were far apart over the islands but hailed the decision to instruct foreign ministers to resume the talks as an important move to end an "abnormal" situation. He said talks on the issue had long been "stagnant".
Looking relaxed in talks with Putin under a glittering chandelier in an ornate Kremlin hall, Abe said bilateral trade had grown eightfold in the 10 years since then-Prime Minister Junichiro Koizumi held a summit with Putin in Moscow.
"Nevertheless, our potential for cooperation has not been opened wide enough," Abe said.
Underlining this, the sides failed to clinch any significant agreements on energy cooperation. But Abe said closer ties and more trade would "also make a contribution to the stability and prosperity of our region and the world as a whole."
Russia wants to firm up its footing in Asia as it warily watches China's regional influence grow, even though Putin hosted Chinese President Xi Jinping for a lavish Kremlin summit only a month ago. Japan is also locked in an islands dispute with China, giving it jitters about its huge neighbour.
ECONOMIES TIES RESTRICTED BY ISLANDS DISPUTE
Russia and Japan are both members of the Group of Eight rich nations but the scope for an improvement in relations has long been restricted by the row over islands known in Russia as the Southern Kuriles and in Japan as the Northern Territories.
They were seized by the Soviet Union, of which Russia was then the biggest part, after it declared war on Japan in August 1945 and days before Japan surrendered, forcing about 17,000 Japanese to flee. They are near rich fishing grounds.
Japan and Russia are still nominally at war, although hostilities ended shortly after Japan surrendered. The conclusion of a peace treaty depends on the resolution of the territorial dispute.
Senior Russian and Japanese officials have discussed it repeatedly in recent years but have made little progress.
"This really is a complex matter. And there is no magic wand in the world that could solve the problem in one move," Abe said. "To solve this it takes time and thorough talks."
Russia has frequently signalled that Japan should focus on economic relations and not get too hung up on the islands.
"This process should not be an irritant to bilateral relations but on the contrary one that would help them. Bilateral economic relations are the best instrument to solve this problem," Putin said.
Japan is the largest importer of liquefied natural gas (LNG) and sees Russia as a strategic partner as it looks to diversify and cut the costs of LNG imports, which shot up after a 2011 disaster at its Fukushima nuclear plant.
Tokyo had hoped Moscow would present a proposal for Japan to help build a pipeline connecting East Siberian gas fields and an LNG gas hub on the Pacific coast, but Russia did not do so.
(Additional reporting by Antoni Slodkowski in Tokyo, Writing by Steve Gutterman and Timothy Heritage)
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