Sudan hopeful for South Sudan deal despite fresh fighting - Reuters

Diplomats said there has been progress after two weeks of African Union-brokered talks between the neighboring countries, but no breakthrough yet on setting up a demilitarized buffer zone at the unmarked border, much of which is disputed.

Western and African diplomats hope to conclude negotiations at the weekend with a summit on Sunday between Sudan's President Omar Hassan al-Bashir and his southern counterpart, Salva Kiir.

"I believe Bashir and Salva Kiir will be here to achieve something for the people of their countries ... We hope they will succeed and sign an agreement," Abdelrahman Sir al-Khatim, a senior member of Sudan's delegation, told reporters on the sidelines of the talks.

Last month, Sudan and South Sudan reached an interim deal to restart southern oil exports through the north but Sudan insists on a border security deal first, which both parties are trying to hammer out at this latest round of negotiations.

Unless the two countries reach a comprehensive peace deal by a September 22 deadline, they risk incurring sanctions from the United Nations Security Council.

The African neighbors came close to war in April in the worst outbreak of violence since South Sudan seceded from Sudan in July 2011 under a peace deal that ended decades of civil war.

Sudan would only sign a deal that covers all issues left over from South Sudan's secession such as oil transit fees and border security, said Khatim, who is Sudan's ambassador in Ethiopia.

South Sudan says Kiir's attendance will be only confirmed if there is a breakthrough at the security talks, but diplomats say the president will find it hard not to show up after he was officially invited by Ethiopia.

NEW FIGHTING

Fighting continued in the border area on Wednesday. Sudan's army said it had clashed with rebels in Blue Nile state and seized the area of Sarkam close to the border to South Sudan.

Sudan accuses South Sudan of supporting rebels of the Sudan People's Liberation Movement-North (SPLM-North) which has been fighting the army in Blue Nile and nearby South Kordofan state for more than a year. Both states border South Sudan.

"After the operation the armed forces started securing the area and cleansed it on a large scale," army spokesman al-Sawarmi Khalid told the state-linked Sudanese Media Center (SMC) late on Wednesday.

SPLM-North spokesman Arnu Lodi could not confirm the fighting. South Sudan officials could not immediately be reached for comment.

Leaders of SPLM-North are also negotiating with Sudan in non-direct talks in Ethiopia over a political solution in South Kordofan and Blue Nile, but diplomats see no real progress.

Kamal Obeid, head of Sudan's delegation dealing with SPLM-North, said talks were ongoing, adding Sudan still insisted that South Sudan cut any ties with the SPLM-North.

Juba denies any links with the group, which is in alliance with rebel operations from Sudan's western Darfur region which want to topple Bashir.

The United Nations, African Union and Arab League brokered a deal between Sudan and SPLM-North last month to allow much-needed aid into rebel-held areas in both states. Fighting has displaced more than 600,000 people in both states.

But the agreement has not been implemented yet as Sudan and the U.N. have been unable to agree on how to deliver aid.

(Reporting by Ulf Laessing and Khalid Abdelaziz, Editing by Sophie Hares)