Engine testing was conducted successfully in early May at North Korea's Musudan missile complex in North Hamgyong province, the JoongAng newspaper said, citing diplomatic sources.

The engine is being developed to power North Korea's multi-stage Taepodong-2 missile with a range of up to 6,000 kilometers (3,600 miles), it said. Engine testing is often the last step before an actual flight test of a missile.

"US intelligence agencies think that the size of the combustion trace and the amount of liquid fuel used, hint that the test is part of an experiment to develop the Taepodong-2 missile," a diplomatic source was quoted as saying.

South Korea's defense ministry refused to comment on the report.

Unification Minister Jeong Se-Hyun, however, said the reported test could be a negotiating tactic by North Korea to give it more leverage with the United States ahead of a new round of six-way talks on its nuclear weapons drive.

"North Korea has a record of making such gestures," he said.

The Stalinist country has traditionally used harsh rhetoric or provocative moves ahead of crucial negotiations with the outside world.

Jeong said he was unable to confirm that a test had occurred but he said North Korea has been eager to develop long-range ballistic missiles.

"This may not be entirely for negotiations. There may be other purposes," he said of the alleged test.

Late last year, North Korea restored facilities for missile engine testing destroyed by an explosion in December 2002.

The Taepodong-2 missiles use Chinese liquid fuel engines as a first stage rocket and a Rodong missile as a second stage. US intelligence measure the flame of North Korean rockets during engine combustion testing to determine the capability and range.

Pyongyang stunned the world in August 1998 by test-launching over Japan a Taepodong-1 missile with a range of up to 2,000 kilometers, claiming it was a satellite launch.

Japanese news reports have said Tokyo and Washington would from next year begin joint exercises simulating their response to a missile attack on Japan.

From September, the US navy plans to deploy an Aegis warship with anti-missile capabilities in the Sea of Japan, also known as the East Sea.

North Korea has already deployed short-range Scud missile and Rodongs with a range of 1,300 kilometers, while actively developing longer-range missiles. US intelligence reports say North Korea has developed ballistic missiles with a range of up to 4,000 kilometers.

South Korea's defense ministry estimates North Korea has about 600 Scuds and 100 Rodong missiles.

The cash-strapped country has refused to stop missile exports, a major source of hard currency earnings.

Pyongyang sold 60 million dollars' worth of missiles and parts to Iraq, Iran, Syria and Yemen in 2002, according to South Korean defense data.

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