* Iran, powers step up dialogue to end nuclear standoff
* Expert talks in Vienna may help shape outlines of any deal
* Iran sets more conciliatory course but no breakthrough yet
* Iran denies halt to higher-grade uranium enrichment
By Fredrik Dahl
VIENNA, Oct 30 (Reuters) - Iran and six big powers beganexpert-level talks on Wednesday, building on diplomatic momentumcreated by a pragmatic shift in Tehran towards negotiating apeaceful solution to the dispute over Iranian nuclear ambitions.
However, despite much friendlier contacts between the sidessince Hassan Rouhani took office as Iranian president with apledge to reduce tension with the West, major differences remain to be overcome for any breakthrough deal to be reached.
Highlighting one big hurdle, Iran said it was continuing itsmost sensitive nuclear activity, uranium enrichment to a levelclose to that needed for bombs, denying a statement by aparliamentarian last week that it was halted.
"There has been no stop in the production process," Iraniannuclear energy chief Ali Akbar Salehi told Iranian parliamentarynews agency Icana.
The meeting of technical and sanctions experts was meant toprepare the next round of high-level political negotiations, tobe held in Geneva next week, on the contested Iranian nuclearprogramme with hopes of real headway after years of paralysis.
Western diplomats said the talks at the U.N. complex inVienna could be instrumental in defining the contours of anypreliminary deal on scaling back Iran's enrichment in return forrelief from sanctions imposed on Tehran.
But they cautioned that there is no nascent agreement yet.The talks will be held over two days.
Iran rejects accusations it is covertly researching themeans to produce nuclear weapons, saying it is refining uraniumonly for energy generation and use in medical treatments.
The Vienna talks began behind a veil of secrecy: guardssealed off the entrance to a conference room where place cardsindicated where delegations would sit.
Officials from both sides were later seen heading to theroom; they declined to comment.
After years of deadlock and increasingly bellicose rhetoric,the June election of Rouhani, a relative moderate, has dispelledan atmosphere of intransigence and pessimism rife with fears ofa descent into a devastating new Middle East war.
Rouhani, a relative moderate and former chief nuclearnegotiator for Iran, took office in August promising to try toresolve the dispute and secure a relaxation of sanctions thathave severely damaged Iran's oil-dependent economy.
The Oct. 30-31 expert-level meeting was the latest in aseries of talks over the last month.
IRAN READY FOR CONCESSIONS?
At negotiations with the United States, Russia, China,France, Britain and Germany on Oct. 15-16, Iranian negotiatorsexpressed readiness to address Western concerns over theprogramme but left many details unanswered about specificconcessions they may be willing to make, diplomats said.
Separately, the U.N. nuclear watchdog and Iran said onTuesday they held "very productive" talks this week on how toadvance a long-blocked investigation into Iranian atomicactivities and will meet again in Tehran next month. [ID:nL5N0IJ2E7]
"We welcome the commitment expressed by the parties to makeswift progress in their cooperation aimed at resolvingoutstanding issues," a spokesman for European Union foreignpolicy chief Catherine Ashton, who coordinates the talks withIran on behalf of the powers, said about the IAEA-Iran meeting.
Both diplomatic tracks focus on suspicions that Tehran maybe seeking the capability to assemble nuclear bombs behind thefacade of its declared civilian atomic energy programme.
The powers want Iran to stop 20 percent enrichment, ship outexisting stockpiles of the material and cease operations at itsFordow uranium enrichment site, buried deep underground.
Iran has signalled that it may be willing to discusssuspending this higher-level enrichment if the West liftspainful sanctions on its oil and banking industries, somethingWestern governments do not want to do as a first step.
"Iran now wants an agreement that would provide sanctionsrelief. To get one, Iranians are now probably prepared to makeconcessions that were unthinkable in Tehran before theelection," Robert Einhorn, the U.S. State Department's non-proliferation adviser until earlier this year, said last week.
Diplomats said they would seek specifics at the meeting of experts, and at the follow-up negotiations to be conducted bysenior foreign ministry officials in Geneva on Nov. 7 and 8, onhow far Iran is willing to go to allay international concerns.
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