N Korea should focus on peace - McCully

New Zealand has condemned North Korea after an inquiry found the sinking of a South Korean navy ship was caused by a torpedo from their northern neighbour.

The ROKS Cheonan sunk on March 26. Fifty-eight sailors were rescued, but 46 died - South Korea's worst military disaster since a truce ended the three-year Korean War in 1953.

A recent inquiry by civilian and military experts from South Korea, the United States, United Kingdom, Australia, Canada and Sweden found the sinking was caused by a North Korean torpedo.

China, North Korea's only major ally, said it would conduct its own inquiry into the sinking.

Fear of escalating tension weighed on South Korean financial markets, already worried that investors jumpy about global financial concerns may pull out their money.

The South Korean won suffered its biggest daily fall against the dollar in 10 months. Stocks closed at their lowest level in almost three months yesterday.

Foreign Affairs Minister Murray McCully said New Zealand would support South Korea in considering appropriate responses to encourage stability on the Korean Peninsula.

"We urge North Korea to refrain from further de-stabilising acts."

North Korea should focus its efforts towards peace and dialogue, Mr McCully said.

He offered South Korea New Zealand's sympathy and condolences for the dead and missing sailors and commended their "careful and deliberate" handling of the incident.

- NZPA