US and South Korean military chiefs held talks Wednesday on ways to deter North Korea without triggering a war, as a firing drill by the North briefly rattled Seoul's financial markets.

Admiral Mike Mullen, chairman of the US Joint Chiefs of Staff, is visiting Seoul to show solidarity in the wake of the North's deadly artillery attack on a South Korean border island last month.

Seoul's military said Mullen and his JCS counterpart General Han Min-Koo discussed ways to deter any future attacks, after the first shelling of civilian areas since the 1950-53 war sparked outrage in the South.

They were also expected to discuss the North's likely motives, said a spokesman for Seoul's JCS.

Several top officials from both countries have said leader Kim Jong-Il is likely trying to bolster the military credentials of his son and heir apparent Kim Jong-Un, during an uncertain transition towards an eventual succession.

The two countries' navies last week staged their biggest-ever joint exercise as a warning to the North, after its November 23 attack killed two civilians and two marines, wrecked 29 homes and threw the region into crisis.

This week the South's military is holding live-fire drills off its coast, ignoring the North's warnings that they could spark a war.

The distant sound of artillery firing from the North briefly pushed down the stock market and the won Wednesday. But Seoul's military said it appeared to be a regular artillery drill and no shells landed south of the contested Yellow Sea border.

Mullen, in earlier comments to reporters aboard his plane, confirmed the two sides would review planned exercises and discuss responses to any future attacks.

The US military chief, quoted by The Wall Street Journal, said future drills must improve preparedness while not fuelling tensions.

"We all need to be mindful of the overall situation as we look at what we would call normal kinds of exercises, or even routine, because normalcy and routine are not what they used to be," Mullen said.

The South's military was widely criticised for a perceived weak response to last month's attack and the defence minister stepped down.

His successor Kim Kwan-Jin, who will meet Mullen later, has vowed next time to use the South's air power to hit the North's artillery batteries.

The United States stations some 28,500 troops in the country, and assumes command of both countries' militaries in case of war. The South currently has an agreement to consult US forces before using its own jet fighters in combat.

"The two sides are likely (Wednesday) to discuss the issue of approving an air raid when North Korea attacks our territory," a Seoul military source told Yonhap news agency Tuesday.

"Part of our discussion is to keep any actions limited to those that would not escalate, because no one wants this to break out into conflict right now," Mullen said on his plane.

"That said, the South Koreans have every right to defend their country and their people."

The United States is pressing China to use its economic and political influence to restrain its ally North Korea.

Mullen said Beijing's economy was dependent on stability, so he hoped it would pressure Pyongyang to change its behaviour.

Deputy US Secretary of State James Steinberg will lead a high-level delegation to Asia next week, the State Department announced.

"In Beijing, they will meet senior officials to continue consultations with the Chinese on regional security issues, including recent developments on the Korean peninsula," it said in a statement.

The US and its regional allies have rejected a Chinese call for emergency talks on the crisis between envoys to six-party nuclear disarmament talks, including the North's representative.

They say the North must first mend fences with the South and show seriousness about nuclear disarmament.

But Steinberg, in a speech to a think-tank Tuesday, played down differences with China over its unruly ally.

"We believe in the interest of both the United States and China... to work together to achieve solutions to the world's most vexing problems," he said.