SEOUL, S.Korea - North and South Korea have agreed to build a nursery for the children of women workers at a joint industrial estate in another sign of improving ties, officials said Tuesday.

Representatives of factory owners at the Kaesong estate and North Korean authorities will sign an agreement Wednesday, said unification ministry spokesman Chun Hae-Sung.

It will accommodate some 200 children and be completed by the end of this year, Chun said.

Women make up 85 percent of the 40,000 North Korean workers at some 110 South Korean factories on the estate just north of the border. They are mostly in their 20s and 30s.

Last week the two sides agreed a five-percent wage rise for estate employees after Pyongyang shelved a demand for huge increases.

In June the North stunned factory owners by calling for a pay rise to 300 dollars a month, from around 75 dollars currently, including insurance.

The demand raised speculation that the North intended to shut down the estate, the last major reconciliation project still operating.

But after months of bellicose moves, including missile launches and a nuclear test, the North in August began making conciliatory gestures towards the United States and South Korea.

It freed two US journalists after a visit by ex-president Bill Clinton and called for direct talks with Washington on the nuclear stand-off.

It also freed five South Korean detainees, eased curbs on the operations of Kaesong, sent envoys for talks with the South Korean president and proposed a new round of family reunions.