By Arshad Mohammed

WASHINGTON, Sept 12 (Reuters) - The United States has made enough headway in talks on ending North Korea's atomic programs to prepare for the possibility of rewarding Pyongyang with $25 million in heavy fuel oil, according to a U.S. document obtained by Reuters on Wednesday.

Under a multilateral agreement reached on Feb. 13, North Korea is to receive 950,000 tonnes of heavy fuel oil (HFO) or its equivalent once it has disabled its nuclear facilities and provided a complete declaration of its nuclear programs.

That agreement is part of a broader deal hammered out in 2005 by the two Koreas, China, Japan, Russia and the United States under which North Korea would ultimately abandon all its nuclear weapons and programs.

In the document, the administration told Congress on Tuesday it had made enough progress in talks on how North Korea may disable its nuclear facilities and declare its atomic programs to lay the groundwork for the fuel shipments.

"Although these discussions remain ongoing, the administration deems the initial progress as sufficient justification to begin preparations for a first shipment by the United States," the document said.

"It is important to establish the flexibility for the United States to expedite HFO shipments as the DPRK achieves denuclearization milestones," it added, referring to the country by its formal name, the Democratic People's Republic of Korea.

The document said U.S. President George W. Bush planned to use $25 million in U.S. funds to provide heavy fuel oil to North Korea. Under U.S. law, Bush must inform Congress if he plans to waive restrictions on such aid to North Korea.

North Korea, which tested a nuclear device in October, is subject to U.S. and U.N. Security Council sanctions.

'DUCKS IN A ROW'

Analysts said the Bush administration's decision to tell Congress it may give North Korea the fuel suggested progress toward a deal on the next steps in the denuclearization talks.

"All the data including this (notification to Congress) is showing that the United States and others are encouraged by what they see happening and they are eager enough to push the process forward that they are trying to get all of the ducks in a row," said Heritage Foundation Korea expert Bruce Klingner.

Charles "Jack" Pritchard, a former U.S. negotiator with North Korea who is now president of the Korea Economic Institute in Washington, said Hill probably wanted to show North Korea that the United States would meet its commitments.

"Hill wants to have this in hand when the six-party negotiations begin again next week so he can turn to his allies, and especially to the North Koreans, and say 'We are following up on our end of the bargain,'" Pritchard said.

The next round of six-party talks is expected to be held soon, possibly as early as next week in Beijing.

U.S. officials have said they hoped at that session to work out a timeline for North Korea to disable its atomic facilities and disclose its nuclear programs and for the other parties to reciprocate by providing it with the fuel oil or other aid.

"We wouldn't be doing this if we didn't think there might be a need for it in the coming months," said a U.S. official who spoke on condition of anonymity, stressing that there is not yet any agreement to actually provide the heavy fuel oil.

"You want to set it up so that you don't have any delays that are caused if in fact you get an agreement," he added.

Under the first phase of the Feb. 13 deal, North Korea this summer shut down its nuclear facilities at Yongbyon and invited back International Atomic Energy Agency inspectors. In return, it received 50,000 tonnes of heavy fuel oil from South Korea.

An unrelated dispute over North Korean at a Macao bank delayed those steps for months, an embarrassment the Bush administration probably hopes to avoid in the next phase.

The U.S. document said China planned to provide a second shipment of heavy fuel oil and that both Beijing and Seoul had urged the United States to consider providing a third shipment of about 50,000 tonnes, possibly as early as this month.

In one sign of progress, a team of U.S. officials and nuclear experts visited the five megawatt reactor at North Korea's Yongbyon facility on Wednesday and were allowed to see everything they wished, the U.S. State Department said.

State Department spokesman Sean McCormack said they planned to inspect more sites at Yongbyon on Thursday and to meet North Korean officials in Pyongyang on Friday to discuss "how you might go about actually disabling the reactor."

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