SEOUL (Reuters) - North Korea said on Tuesday it was preparing to launch a satellite on one of its rockets, which analysts have said would actually be the test-firing of a long-range missile designed to strike U.S. territory.

The announcement, which unsettled financial markets in South Korea, follows weeks of angry rhetoric from Pyongyang aimed at the conservative government in Seoul and warnings that the Korean peninsula was on the verge of war.

Analysts said Pyongyang was using brinkmanship to put pressure on the new U.S. government and its main allies in the region, South Korea and Japan, to reverse tough policies against the North. Secretary of State Hillary Clinton, on a trip to Asia last week, warned North Korea against any provocative moves.

The preparations for launching an experimental communications satellite ... are now making brisk headway, North Korea's KCNA news agency said.

When this satellite launch proves successful, the nation's space science and technology will make another giant stride forward in building an economic power.

Officials in Seoul, Tokyo and Beijing said they were closely watching developments in the North while security experts were divided on whether the launch could take place in days or weeks.

North Korea stunned the region when it fired a missile over Japan in 1998, saying it had launched a satellite.

If the long-range rocket flies successfully, Pyongyang would have a missile with a maximum range of 6,700 km (4,200 miles), designed to eventually carry a nuclear warhead that could hit U.S. territory, but not the contiguous 48 states, analysts said.

This would, for the first time, pose a direct security threat to the United States. North Korea has only once tested the long-range rocket, better known as the Taepodong-2, in 2006 when it flew for a few seconds and then exploded.

Proliferation experts have said the North, which also tested a nuclear device in 2006, does not have the technology to make a nuclear weapon small enough to mount as a warhead.

It does not matter if it is a satellite or a ballistic missile because they use similar technology. The Defense Ministry will take it as a threat to our security, Defense Minister Lee Sang-hee told parliament, Yonhap news agency said.


The North was hit with U.N. sanctions that restrict material and weapons trading after the failed 2006 missile launch. It has also been banned from conducting more ballistic missile launches.

There are a lot of loopholes in practice (in the sanctions). If the North launches missiles again, the sanctions are expected to tighten up, said Lee Dong-bok, with the CSIS think tank in Seoul and an expert on North Korea's negotiating tactics.

The KCNA announcement unnerved financial markets in Seoul.

The news will be additional risk factor to investors, who have already shunned South Korean assets including the won due to recent financial market turmoil, said Jeong My-young, a currency strategist at Samsung Futures Inc.

Ham Hyeong-pil, a South Korean analyst, said it might not be until early March that the North could fire the rocket.

Even after a missile or rocket is vertically installed onto the launch pad, it still takes from seven to 10 days, even at a fast pace, to actually fire it, said Ham, a researcher at the Korea Institute for Defense Analysis.

South Korean media said the North had been assembling the Taepodong-2 indoors. An official in Seoul said it had not moved a finished missile to a launch pad. U.S. spy satellites can monitor preparations once the missile is set vertically and moved to a firing pad.

The North, which for years has used its military threat to squeeze concessions out of global powers, may feel it can improve its bargaining position with the new U.S. government by making provocative moves early in its term, analysts have said.

North Korea, which has a habit of making provocative statements at times of heightened regional diplomacy, made its announcement just after Japanese Prime Minister Taro Aso touched down in Washington for a summit with new President Barack Obama.

The KCNA announcement also comes just before the one-year anniversary of South Korean President Lee Myung-bak taking office. The North, angered at Lee's decision to end unconditional aid, has threatened to attack the South.

Analysts do not think the impoverished North will risk a larger conflict because its antiquated but massive military would be no match for South Korea with its 670,000 troops and powerful U.S. ally, which has about 28,000 soldiers in the South.

(Additional reporting by Kim Junghyun, Rhee So-eui and Cheon Jong-woo in Seoul, Yoko Nishikawa in Tokyo and Chris Buckley in Beijing; Editing by Dean Yates)