The finance ministry is operating on an emergency footing ahead of the second round of high-level inter-Korean talks aimed at diffusing the spike in tension, ministry officials said Sunday.

The ministry in charge of managing economic affairs said the marathon negotiations late Saturday and early Sunday at the neutral border village of Panmunjom, and the next meeting slated to kickoff later in the day may ease geopolitical risks triggered by the exchange of artillery fire Thursday.

The artillery duel and subsequent threat by North Korea to take military action against South Korea's propaganda loudspeakers along the 240-kilometer-long Demilitarized Zone, along with Seoul's counter-warning that it will respond swiftly and decisively to any further provocation has fueled uncertainties surrounding Asia's fourth-largest economy. Both sides have placed their militaries on high alert.

Insiders said the fact that the two sides engaged in dialogue is a sign that the current standoff can be resolved without the situation escalating further.

"We are cautiously optimistic over the latest events, although we are keeping close tabs on market developments and formulating contingency plans that can reduce fallout if things do not improve," said an official, who declined to be identified.

The ministry ordered all its key officials to remain on standby over the weekend.

Besides checking North Korea, finance ministry officials are following developments taking place in China and the impact a U.S. key interest rate hike will have on the global economy.

They are also examining the movement of funds, private spending and trade, as well as making a concerted push to inform international credit rating agencies, investors and media of the latest developments.

On Saturday, the ministry said while the stock market backtracked and the foreign exchange and local bond market were rocked by the standoff, retail sales and the service sector were not affected, along with trade.

The benchmark KOSPI dropped some 2 percent Friday to 1,876.07, with the won falling to 1,195 won to the U.S. dollar, the lowest number since Sept. 26, 2011. Premiums on 10-year state debts fell 0.02 percent Friday to 2.256.

The ministry said that the fact that the two sides have taken time off to discuss outstanding issues could lead to a settlement being reached. Such a development could benefit the economy, which is trying to shake off the ill effects of the Middle East Respiratory Syndrome outbreak that wrecked havoc on spending and caused a sharp drop in inbound tourism traffic in June and July. (Yonhap)