China and Chile have decided to start talks on a free trade agreement (FTA), leaders of the two countries announced Thursday after a two-hour meeting in Santiago.

Chilean President Ricardo Lagos Escobar called the decision an "important step" for Chile, which will become the first South American nation to start FTA talks with the world's most populous country.

Chile has already decided to formally recognize China's status as a full market economy, Lagos confirmed.

Lagos and visiting Chinese President Hu Jintao witnessed the signing of several agreements between the two countries, under which China includes Chile on its list of outbound tourist destinations and the two countries agree to boost cooperation in various fields, such as agriculture, mineral resources and medicine.

The two leaders also promised to promote the full-range cooperative partnership between the two countries.

Hu said China-Chile relationship is currently in its "best period" in history since the two countries established full diplomatic relations 34 years ago.

"The fact that we signed a number of agreements here today demonstrates China and Chile have begun sincere and mutual cooperation on an equal footing," Hu said, adding that "China-Chile relations will have a bright future."

Chile was China's third largest trading partner among South American nations. Bilateral trade between the two countries reached 3.5 billion US dollars in 2003, up 37.6 percent from the previous year.