The leaders of South Korea and Japan have agreed to improve diplomatic and economic ties, despite bitter feelings from Japan's occupation of the Korean peninsula and a lingering territorial dispute.

South Korean President Lee Myung-bak held talks with Japanese Prime Minister Yoshihiko Noda in Seoul Wednesday, the second meeting between the two leaders since Mr. Noda took office in late August. The two held talks on the sidelines of the United Nations General Assembly last month.

Mr. Noda said the two leaders agreed to work toward closer economic cooperation.

He said they would look for ways that Japanese and South Korean companies can cooperate more closely in their overseas operations.

The leaders also agreed to resume working-level talks on a long-stalled bilateral free trade agreement, and to expand an existing currency-swap.

Mr. Noda said the goal is to stabilize financial markets and reassure investors.

Mr. Lee said he and the Japanese prime minister pledged to continue cooperation on eliminating North Korea's nuclear weapons program.

He said they agreed that the denuclearization of North Korea would add to peace and prosperity throughout Northeast Asia.

As a goodwill gesture, Mr. Noda returned five volumes of ancient Korean royal documents Japan seized during its colonial rule of Korea from 1910 to 1945.

He said he hoped the action would foster increased cultural exchanges between the countries.