World governments are viewing the death of North Korean leader Kim Jong Il with wary optimism _ a possibly destabilizing moment for the region as power passes to his son but also an opportunity for a new diplomatic start.

Britain's Foreign Secretary William Hague expressed his condolences Monday but added "this could be a turning point for North Korea" as Kim Jong Un takes over as supreme leader.

"We hope that their new leadership will recognize that engagement with the international community offers the best prospect of improving the lives of ordinary North Korean people," Hague said in a statement. "We encourage North Korea to work for peace and security in the region and take the steps necessary to allow the resumption of the six-party talks on denuclearization of the Korean peninsula".

Kim's death was announced Monday by North Korean state television, two days after he died at age 69 of a heart attack.

During his 17 years in power, Kim's pursuit of nuclear weapons and his military's repeated threats to South Korea and the U.S. have stoked fears that war might again break out or that North Korea might provide weapons of mass destruction to terrorist movements.

South Korea put its military on "high alert" and President Lee Myung-bak convened a national security council meeting after the news of Kim's death. The Korean peninsula remains technically in a state of war more than 50 years after the Cold War-era armed conflict ended in a cease-fire.

Japanese Prime Minister Yoshihiko Noda held an emergency national security council with top Cabinet members soon after hearing the news.

He "instructed us to be best prepared in case of any unexpected development" while top officials meet to discuss the situation, Chief Cabinet Secretary Osamu Fujimura told journalists in Tokyo.

Fujimura expressed condolences and said Japan hoped Kim's death would not affect the region adversely.

"First of all we hope that this sudden development would not give adverse impact on the peace and stability of the Korean Peninsula," he said.

The news jolted financial markets, raising the specter of more instability on the divided Korean peninsula as the reclusive regime undergoes a leadership succession.

European stock markets fell slightly in early trading. Wall Street was set to open lower. Broader S&P 500 futures.

South Korea's Kospi index dived nearly 5 percent but later recouped some losses to close 3.4 percent lower. Other Asian stock markets also fell.

Australia's Foreign Minister Kevin Rudd said Kim's death brings the situation to "one of those critical junctures" and "an exceptionally difficult period of transition."

"It is critical that everybody exercises appropriate calm and restraint in what is a important development in terms of the overall stability of the region and the security of us all," Rudd said.

"This presents an opportunity for the North Korean regime, the new leadership of the new regime, to engage fully with the international community on the critical questions of how to feed their people, how to open their economy and, more broadly, how to deal with the long-standing problem of North Korea's nuclear weapons."

In China, a key North Korean ally, Foreign Ministry spokesman Ma Zhaoxu called Kim a "great leader" and said China believes the North Korean people will "turn their grief into strength, unite as one, and continue to advance the cause of North Korean socialism."

But he also added that Beijing would continue to offer its support and make "active contributions to peace and stability on the Korean peninsula and in this region."

China has long sought to convince North Korea of the need for economic reform, and Kim's death raises hopes that Pyongyang might now take heed of such advice, said Korea expert Lu Chao at China's Academy of Social Sciences in Liaoning province, which borders North Korea.

"There will definitely be change, good and positive change," Lu said. "North Korea will work more closely with the global community toward the peace and stability of the Korean Peninsula."

China is also expected to take a strong behind-the-scenes role to help retain its influence, which is seen as important no matter which direction North Korea takes, said U.S. Naval Academy China scholar Yu Maochun.

"If North Korea continues to be an international pariah, China will continue to benefit from its current leverage," Yu said. "If North Korea becomes less intransigent and slightly more open, then China will be greatly worried about the possible warming-up, or even reunification, between North and South Koreas."

With so many questions in the air at the moment, however, most countries are waiting to see what comes next.

"The death of a dictator is always a period of uncertainty for a dictatorship," said Swedish Foreign Minister Carl Bildt on Twitter. "And North Korea is the hardest dictatorship in our time."

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Associated Press writers around the world contributed to this report.