SEOUL (Reuters) - Communist North Korea denounced impending joint military exercises by South Korea and the United States, and said it would “wipe them out” with nuclear weapons if they threatened it, its KCNA news agency said on Sunday.

Anti-North Korea protesters burn North Korean flags and portraits of the North's leader Kim Jong-il during a rally in Seoul August 15, 2009. REUTERS/Choi Bu-Seok

South Korean and U.S. forces start computer simulation and communication exercises on Monday. They come in the wake of rare conciliatory moves by Pyongyang, which this month released two jailed U.S. journalists and a detained South Korean worker.

On Sunday, KCNA said reclusive North Korean leader Kim Jong-il had met the leader of the South’s powerful Hyundai Group, a major investor in the North -- a move that may comfort investors worried about increased tensions.

North Korea regularly denounces joint exercises as a preparation for invasion and nuclear war.

“Should the U.S. imperialists and the Lee Myung-bak group threaten the DPRK (North Korea) with nukes, it will retaliate against them with nukes,” KCNA quoted a military official as saying. Lee Myung-bak is South Korea’s president.

Impoverished North Korea has been angered by Lee’s policy of ending unconditional handouts -- once equal to about 5 percent of the North’s estimated $17 billion a year economy -- and instead linking aid to progress Pyongyang makes in ending the security threat it poses to the region.

“It is the iron will and resolute stand of the Korean People’s Army to go into action anytime to mercilessly wipe out the aggressors,” the northern military official said.

The United States stations about 28,500 troops in South Korea to support its own 670,000 soldiers. The North has about 1.2 million troops but analysts say they are ill-equipped and would be no match for U.S. and South Korean forces.

The two Koreas are technically still at war since no peace treaty was signed after their 1950-53 conflict.

KIM MEETS HYUNDAI BOSS

Kim’s meeting with Hyundai Chairwoman Hyun Jeong-eun, one of the few South Korean executives to have direct dealings with the North Korean leader, is his first major meeting with a prominent figure from the South in nearly two years.

Kim, 67 and thought to be recovering from illness, also hosted Bill Clinton on August 4 when the former U.S. president won the release of two American journalists jailed in the North.

Hyun went to North Korea last week to win the release of the Hyundai worker. She also sought to reopen a mountain resort in North Korea run by a Hyundai affiliate that was shut down a year ago after a North Korean soldier shot dead a South Korean tourist who had wandered into a military area.

The resort and a joint factory park run by Hyundai have been vital sources of legitimate foreign currency for North Korea. News of a possible meeting with Kim and Hyun had boosted shares in firms that have dealings with the North.

The North’s broken economy has been hit by U.N. sanctions imposed after a long-range rocket launch in April, widely seen as a disguised missile test, and a nuclear test in May.

The sanctions were aimed at cutting off the North’s trade in arms, another vital source of hard currency.

Ambassador Philip Goldberg, the U.S. coordinator for implementation of the U.N. resolutions, is expected to travel to Asia this week to strengthen the measures.

Last week, he said efforts to inspect North Korean vessels for illegal weapons and curb financial transactions by entities suspected of weapons proliferation were winning wide backing.