* Turkey-Armenia ties traumatised by WWI killings

* Breakthrough to boost stability in oil-rich Caucasus

ANKARA, Oct 10 (Reuters) - Turkey and Armenia sign a peace accord on Saturday to end a century of hostility stemming from the World War One mass killing of Armenians by Ottoman forces.

But the accord, to be signed by the foreign ministers of the two neighbours in Zurich, still has to be approved by the Turkish and Armenian parliaments in the face of opposition from nationalists on both sides and a powerful Armenian diaspora which insists Turkey acknowledge the killings as genocide.

"This is a sign that Turkey is changing and is now dealing with things of its past and that it's a valuable partner for the West," said Hugh Pope, senior analyst at the International Crisis Group and author of books on Turkey.

"Not having a relationship with Armenia hobbles Turkey's role in the Caucasus," said Pope, adding the thaw would also benefit Ankara's troubled quest to join the European Union.

But a decades-old dispute between Turkey's ally Azerbaijan and Armenia over the disputed enclave of Nagorno-Karabakh also hangs over a final settlement and talks between the leaders of the Azerbaijan and Armenia over the region ended without result on Friday [ID:nL9673847].

Turkey cut ties and shut its border with Armenia in 1993 in support of Azerbaijan which was then fighting a losing battle against Armenian separatists in Karabakh.

Ties between Muslim Turkey and Christian Armenia are strained by what Armenian and many Western historians say was the mass deportation and deliberate killing of up to 1.5 million Armenians by the Ottoman Empire during World War One.

Turkey says Armenians were among many thousands killed in the chaos as the Ottoman Empire fought off Russian, British, French and Greek armies and attempted to put down an Arab revolt before eventually imploding under the strain. But Turkey denies the killings of Armenians amounted to genocide.

The genocide issue, until recently taboo in Turkey, has damaged ties between Ankara and its ally the United States, where Armenian-Americans have been pushing for years for a law to name the massacres a genocide.

Restoring Turkish-Armenian ties would increase Ankara's clout in the South Caucasus region, a transit corridor for oil and gas to the West. Landlocked Armenia also stands to make huge gains, opening its impoverished economy to trade and investment.

KARABAKH HANGS OVER THAW

Turkey and Armenia came under U.S. and European Union pressure to agree to sign the Swiss-mediated peace accord in a symbolic ceremony that will be attended by U.S. Secretary of State Hillary Clinton and other dignitaries.

Once the accord is signed by Turkey's Foreign Minister Ahmet Davutoglu and his Armenian counterpart Edward Nalbandian they must be approved by their countries' parliaments.

But they could languish if either side delays the approval.

Armenians demand that Turkey acknowledge the 1915 killings as genocide, a defining element in Armenian national identity. Many in the huge Armenian community living abroad are suspicious of the thaw and have held protests ahead of the signing.

Under the accords, Turkey and Armenia will set up an international commission of historians to study the events.

Also looming over restoration of ties is the festering Karabakh conflict.

Turkey, which has close cultural ties with Turkic-speaking Azerbaijan, has said that in order to move forward on Armenia, Armenia and Azerbaijan must make progress on the Karabakh.

Turkish Prime Minister Tayyip Erdogan told the Azeri parliament earlier this year that Turkey would not open its border with Armenia until Yerevan ended what he called its occupation of Azerbaijan.

He said on Friday that Turkey "would never take part in a process which puts Azerbaijan in a difficult situation".

Violence erupted in Karabakh, an ethnic Armenian enclave within Azerbaijan's internationally recognised borders, in the late 1980s as the Soviet Union headed towards its 1991 collapse.

Ethnic Armenian forces, backed by Armenia, drove out Azeri troops and took control of seven districts of Azerbaijan adjacent to Nagorno-Karabakh. Some 30,000 people were killed. (Writing by Ibon Villelabeitia; Editing by Jon Hemming)