The US secretary of state says her country is working hard to avoid an escalation after a report blamed North Korea for the sinking of a South Korean warship.

After talks in China, Hillary Clinton urged countries in the region to contain "the highly precarious situation created by North Korea".

Earlier, South Korean President Lee Myung-bak froze trade with Pyongyang, vowing to punish those who carried out the attack, which killed 46 sailors.

Meanwhile, the Pentagon announced the US was planning to start joint anti-submarine and other naval exercises with South Korea "in the near future".

Pentagon spokesman Bryan Whitman said the decision to start the exercises was "a result of the findings of this recent incident".

'Unequivocal support'

North Korea has said it would retaliate for any action taken against it.

The country's main newspaper called the investigation an "intolerable, grave provocation".

President Lee addressed the nation on television to announce Seoul would no longer tolerate "any provocative act by the North and will maintain a principle of proactive deterrence".

ANALYSIS The problem is that South Korean economic measures, US condemnation and even possible action at the UN are unlikely to change the mindset in Pyongyang. China is the only country with any real leverage over North Korea. Behind the scenes Beijing is going to be the crucial player if tensions are not to spill out of control. The weeks ahead are punctuated with opportunities for further tensions - not least a joint US-South Korean anti-submarine exercise.

The US administration endorsed the move.

"US support for South Korea's defence is unequivocal, and the president has directed his military commanders to co-ordinate closely with their Republic of Korea counterparts to ensure readiness and to deter future aggression," a White House statement said.

South Korea says it will refer the North to the UN Security Council in response to the sinking of the Cheonan in March.

UN Secretary General Ban Ki-moon said he expected serious measures to be taken by the Security Council once Seoul brought the matter to its attention.

He said the evidence that North Korea was responsible for the torpedo attack was "overwhelming and deeply troubling", and urged prompt action to revive six-party peace talks.

China - North Korea's closest trading partner and a permanent member of the Security Council - has urged "calm and restraint". Japan said it was contemplating its own sanctions on Pyongyang.

The North depends on South Korea and China for up to 80% of its trade and 35% of its GDP. In 2009, inter-Korean trade stood at $1.68bn (£1.11bn) - 13% of the North's GDP.

Resolute?

The measures announced by South Korea included:

Stopping inter-Korean trade

Banning North Korean ships from using South Korean waterways or shortcuts

Resuming "psychological warfare"

Referring the case to the UN

KOREAN TRADE FIGURES The North depends on South Korea and China for up to 80% of its trade and 35% of its GDP

In 2009, inter-Korean trade stood at $1.68bn - 13% of the North's GDP

South Korea imports clothes and watches from the joint Kaesong industrial complex; the North imports textiles and electronics

The BBC's John Sudworth in Seoul says the measures are about as tough a response as the South could take, short of military action.

But South Korean Unification Minister Hyun In-taek said Seoul would still maintain the joint economic project in Kaesong, even though it would "respond with resolute measures" to possible attempts by the North to undermine the safety of its workers.

The measures came less than a week after experts from the US, the UK, Australia and Sweden said in a report that a torpedo had hit the Cheonan.

They reported that parts of the torpedo retrieved from the sea floor had lettering that matched a North Korean design.

ATTACKS BLAMED ON NORTH Jan 1967 - South Korean warship attacked near border, 39 sailors killed

Jan 1968 - presidential palace in Seoul stormed, 71 killed

Oct 1983 - Rangoon hotel used by South Korean president bombed, 21 killed

Nov 1987 - South Korean airliner bombed, 115 killed

Mar 2010 - Cheonan warship attacked, 46 sailors killed South Korea divided over response How the ship was sunk Timeline: North Korean attacks Q&A: Cheonan sinking

North Korea denies any involvement in the sinking, calling the investigation results a "fabrication" and threatening war if sanctions are imposed.

The South's new measures included resuming "psychological warfare" against North Korea, which was stopped in 2004. The resumption prompted an angry response from Pyongyang.

"If [South Korea] sets up new tools for psychological warfare such as loudspeakers and leaves slogans for psychological warfare intact, ignoring our demands, we will directly aim and open fire to destroy them," a statement by the military said on Monday.

"More powerful physical strikes will be taken to eradicate the root of provocation if [South Korea] challenges to our fair response," said a commander, according to official news agency KCNA.