(Adds Bashir comments, background, details)
* Kiir says willing to pull back troops from border
* Bashir says wants to improve ties
By Ulf Laessing and Carl Odera
ROSEIRIS, Sudan/JUBA, Jan 1 (Reuters) - Sudan and South Sudan said on Tuesday they wanted to set up a demilitarised border zone, signalling possible concessions ahead of a summit which will test whether they can mend ties and restore vital oil flows.
Sudan's President Omar Hassan al-Bashir and South Sudan's Salva Kiir are expected to hold a summit this month hosted by the African Union to discuss how to secure their disputed border after the neighbours came close to war April.
Both nations agreed in September in Ethiopia to resume oil exports from the landlocked South through Sudan. Juba shut down its oil production in January after failing to agree with Sudan on an export fee, one of several conflicts left over from South Sudan's secession in 2011.
But the African neighbours still have to move back their army 10 km (six miles) from the border to set up a buffer zone, a condition to restart oil flows. Both also accuse each other of supporting rebels on the other's territory.
In a speech on New Year's Eve, Kiir said the new republic was willing to withdraw its troops from the 1,800-km (1,200-mile) long border, much of which is disputed.
"To be able to establish the border monitoring mission, we are temporarily withdrawing our forces from the immediate border areas," Kiir said.
"This will allow for a demilitarised border zone to be operational," he said, without giving a date for the pullout. "We hope that these arrangements will make sure that peace and stability is maintained along our common border."
South Sudan's Information Minister Barnaba Marial Benjamin told Reuters the withdrawal would have to be coordinated between the two countries. He did not elaborate.
NO OIL FLOWS YET
Bashir did not mention Kiir's comments at a rally on Tuesday but said Sudan wanted to implement the September deals, which would include the troop pullback, and open the border for trade.
"We strive and will continue to strive to improve ties with our neighbour South Sudan which has signed with us a peace agreement," Bashir told a crowd in Blue Nile state which borders South Sudan.
"We are ready for good neighbourly relations and cooperation and we want to implement all agreements signed in Addis Ababa," he said.
South Sudan seceded from Sudan under a 2005 peace deal which ended decades of civil war but both countries have yet to decide on ownership of several disputed border regions.
South Sudan had originally hoped to resume oil exports by January but has postponed turning on wells until the buffer zone is in place. Oil is the lifeline for both economies.
No date or venue has been set yet for the summit though diplomats say the meeting is likely to take place in Addis Ababa where both countries are due to meet in mid-January for border security talks.
The two rivals are also at odds over Abyei, an area between Sudan and South Sudan prized for its fertile grazing land. (Reporting by Ulf Laessing in Roseiris and Carl Odera in Juba; Editing by Michael Roddy)