The fund, which would comprise financial contributions by Saarc (South Asian Association for Regional Cooperation) countries, will offer loans and grants to member countries for projects to help reduce poverty.

The agreement on trade, to be signed during the summit of heads of government on Wednesday and Thursday, would cover services in areas such as health, hospitality, communications, computers and air transport, said Nirupama Rao, India's foreign secretary.

Bhutan chose to focus much of the summit on climate change because South Asia was highly vulnerable to its effects, said Bhutanese Foreign Secretary Daw Penjo.

Bhutan has suffered from the global warming-linked flooding of lakes caused by melting glaciers, Penjo said. “Several lakes have burst, causing devastating effects downstream,” he told reporters. Member nations would start a South Asian University with centres of excellence in New Delhi from October this year and strengthen a regional food bank to help member countries hit by natural calamities, Penjo said.

The prime ministers of Pakistan and India are likely to hold talks later this week in the Bhutanese capital, indicating signs of a possible thaw.

“One always lives in hope and I think that talking and engaging is the most sensible way forward,” Foreign Minister Shah Mahmood Qureshi told reporters.

The South Asian countries have vowed to step up efforts to fight all forms of terrorism, including its financing and associated drug trafficking and illicit arms trade, Penjo told reporters.

He did not detail how the $300 million fund for infrastructure and other projects would be spent, but much of the region's infrastructure, including its transportation and communications, are in desperate need of improvements.

Indian Foreign Minister S.M. Krishna said South Asian nations must grab the opportunity to enhance trade, open borders and facilitate economic integration as the world emerges out of a period of unprecedented global recession.

“Our focus should be on improving regional connectivity through upgrading trade, transport and telecommunication links,” he said in his speech at the conference.—AP