India and Pakistan reached a breakthrough agreement on Tuesday to open formal talks and expressed confidence about settling the Kashmir dispute, which brought the rivals close to a fourth war two years ago.

"We simply want trade with India as freight cost and delivery time is far less," said Jan Muhammad, a cotton trader in Karachi.

Unlike consumer goods, where Indian industry may overshadow Pakistan, commodity trading between the two countries should not harm Pakistan.

"Pakistan may be a little scared in trading industrial and consumer goods with India as they have a large small-scale sector, but they shouldn't have the same kind of fear for commodities trading," said Abhijit Sen, professor of economics at the Jawaharlal Nehru University in Delhi.

Relations have warmed gradually since April, when Indian Prime Minister Atal Behari Vajpayee, 79, launched what he called a final bid for peace in his lifetime.

Traders said the bilateral trading list could include commodities such as sugar, wheat, soymeal, tea and cotton, with more additions possible provided the nations agree to open their rail and road routes for trading.

The two countries re-opened road, rail and air links in recent weeks for transporting people, but have yet to revive the links for moving goods.

Pakistani mills have booked about 150,000 cotton bales from India for the first time in several years after local prices touched record highs in recent months, but the commodity is being moved by ship -- a more expensive mode of transport than road or rail.

In recent years the two nations have traded sugar, but both now have surplus production. Nonetheless, a drop in production in either country could induce traders to import from their neighbour, given prompt supply and attractive prices, traders said.

Indian sugar could be the cheapest for Pakistan due to low transportation costs, said New Delhi-based Vinay Kumar, managing director at the National Federation of Cooperative Sugar Factories.

The Indian tea industry, hurt by falling exports and rising output, is upbeat about the peace talks. Producers in India, the world's largest tea producer, are already anticipating a sharp jump in sales to Pakistan, the third-biggest importer.