BEIJING, Dec 20 (Reuters) - China and India, who fought a brief border war in 1962, have started a week-long anti-terrorism military drill to improve trust and cooperation as the two rising powers seek to put aside decades of frosty relations.

The exercise, called "Hand-in-Hand, 2007", is being held in China's southwestern province of Yunnan and involves 100 troops from each country, state media said on Thursday.

"The aim of the joint anti-terror drill is to strengthen mutual understanding and trust between the two countries and the two armies, and also to enhance their cooperation in the anti-terror area," Chinese Foreign Ministry spokesman Qin Gang said at a news conference.

China enjoys an "all weather relationship" with Pakistan that for decades was underpinned by hostility towards India, but in recent years China and India have tried to expand trade and diplomatic ties, though territorial disputes persist.

Both countries share restive border regions and have sought to suppress minority groups agitating for greater autonomy or outright independence.

Qin said that just because the border issue had still not been resolved despite many rounds of talks, it did not mean China and India could not conduct joint military drills.

"Friendly cooperation between both sides is the main trend. It's natural that there will be disagreements," he added. "We have disputes over the border issue ... but we will not let it become an obstacle to bilateral relations."

The China Daily said that the exercise would be aimed at what Beijing calls the "three evil forces" of "separatism, extremism and terrorism". It gave no more details.

China has waged a relentless campaign against what it calls violent separatist activities of Uighur Muslims agitating for an independent East Turkestan in the oil-rich northwestern region of Xinjiang, which borders Pakistan, Afghanistan and Central Asia.

Pakistan-based militants have long fought Delhi's rule in the divided Himalayan region of Kashmir, while Maoist-lead uprisings in the country's central and southern regions have killed or displaced thousands of people in recent years.

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