By Yara Bayoumy and Sabrina Mao
JUBA/BEIJING (Reuters) - South Sudan freed prisoners of war on Wednesday as clashes appeared to abate between north and south, after cross-border fighting that threatened to tip into all-out war.
Sitting on some of Africa's most significant oil reserves, Sudan and South Sudan have been unable to resolve a dispute over oil revenues and border demarcation since the South gained independence in July.
Nearly all oil production has now stopped and the border fighting in contested oil-producing regions has grown more intense, prompting China, which has economic interests in both countries, and the African Union to push for a diplomatic deal.
"The SPLA (South Sudan's army) handed over prisoners of war to the ICRC. They were 14 who were captured during the battles of Heglig from April 10-15," Philip Aguer, spokesman for South Sudan's army, said in Juba.
Aguer was referring to the Heglig oilfield which the SPLA captured earlier this month but later withdrew from, under international pressure. Juba has since accused Sudan's armed forces of bombing its territory, a claim Khartoum denies.
South Sudan's government and its army have said the deal was brokered by Egypt during its foreign minister's visit to both countries about 10 days ago.
The prisoners are expected to arrive in the north on Thursday morning, Sudan's state news agency SUNA said.
Aguer said the men were mostly Sudanese from the north as well as one South Sudanese who he said had been recruited as a mercenary, adding the Sudanese army was holding at least seven SPLA members as prisoner of war.
"We have requested that they be released if they have not been killed," he said.
The border area appeared calmer after Sudanese Foreign Minister Ali Ahmed Karti said on Tuesday Khartoum was ready to resume talks on security issues. A day earlier, President Omar al-Bashir had ruled out negotiations.
Residents of Bentiu, about 80 km (50 miles) from the contested border, said the area had come under attack on Monday from Sudanese fighter jets.
"I do not want war to come back," Nyachar Teny, an old woman, said in a market damaged by the air strike in which at least two people were killed.
"It seemed like everyone was finished with war."
A Reuters correspondent in Bentiu said he did not hear any air strikes on Wednesday, after days of bombardment in the area. Sudan has denied carrying out any air strikes.
DIPLOMATIC OFFENSIVE BY CHINA AND AU
The United States, China and Britain have urged both sides to return to the negotiating table and end the fighting along the poorly marked 1,800-km (1,200-mile) border.
China has significant oil and business interests in both African nations and is one of Sudan's closest allies. Western powers hope Beijing will overcome its reluctance to get involved in the conflict and help resume talks.
South Sudan's President Salva Kiir cut short a visit to China meant to improve ties strained after Juba expelled the head of a China-led oil consortium it accused of helping Khartoum "steal" southern oil.
A government official in Juba and the Chinese foreign ministry gave no reason why the Shanghai leg of Kiir's visit had been cancelled.
China said it would send its Africa enjoy to Khartoum and Juba to help with talks. The enjoy, Zhong Jianhua, is expected to work with the United States on the issue, China said.
"This is the second time he will go to Sudan and South Sudan to promote talks," Foreign Ministry spokesman Liu Weimin said.
The African Union urged both sides to resume talks, which have collapsed several times, and strike a deal within three months or face a binding ruling.
Sudan's finance minister Ali Mahmoud said all ministers had donated one month's salary to a fund to support the armed forces, SUNA said. All other employees would have two days' pay deducted from their salary, while public institutions would have to cut fuel expenditures by 50 percent.
Both north and south face severe economic crises with fuel shortages and rising food prices, which will make it difficult to fund an all-out war for a long time. Heglig used to supply half of Sudan's oil output.
(Additional reporting by Aaron Maasho in Addis Ababa and Hereward Holland in Bentiu; writing by Yara Bayoumy and Ulf Laessing; editing by Andrew Roche)