SEOUL - North Korea, facing U.N. sanctions for last month's nuclear test, on Monday raised the stakes in its growing confrontation with Washington by sentencing two U.S. journalists to 12 years hard labor for grave crimes.

The sentence follows U.S. Secretary of State Hillary Clinton's warning on Sunday the United States was considering putting the reclusive North back on its list of states that sponsor terrorism, which would further isolate the country.

The journalists, Euna Lee and Laura Ling, of U.S. media outlet Current TV, were arrested in March working on a story near the border between North Korea and China. The trial for the two, working for the company co-founded by former U.S. Vice President Al Gore, opened on Thursday.

The trial confirmed the grave crime they committed against the Korean nation and their illegal border crossing as they had already been indicted and sentenced each of them to 12 years of reform through labor, the official KCNA news agency said in a brief dispatch.

The sentence is certain to deepen the chill in relations with the United States which has been trying for years, with scant success, to convince Stalinist North Korea to give up its ambition of becoming a nuclear weapons power.

U.S. President Barack Obama is deeply concerned by the news, the White House said.

We are engaged through all possible channels to secure their release, White House spokesman Bill Burton said in a statement.

We are deeply concerned by the reported sentencing of the two American citizen journalists by North Korean authorities and we are engaged through all possible channels to secure their release, the White House said in a statement.

The State Department urged North Korea to release the two journalists.

(North Korea) is using the sentence as bait to squeeze concessions out of the U.S. amid heightened tension, said Lee Dong-bok, a senior associate with the CSIS think tank in Seoul and an expert on the North's negotiating tactics.

South Korea's main stock index dipped as the news of the sentencing weighed on sentiment. Although this (fall) will probably be short-lived, there still are concerns the United States may take stringent measures in response, said Lee Yun, a market analyst at Woori Investment & Securities.

Analysts say it would take a military clash at sea or on the border to have a major impact on global markets.

MILITARY GRANDSTANDING

U.S. President Barack Obama at the weekend called the North's latest nuclear test, which was followed by a series of missile tests, extraordinarily provocative and said that this time there would be no appeasement by Washington.

Communist North Korea kept up its rhetoric which is increasingly unnerving a region that accounts for a sixth of the world's economy.

It threatened to retaliate with extreme measures if the United Nations punished it for last month's nuclear test.

Our response would be to consider sanctions against us as a declaration of war and answer it with extreme hardline measures, the North Korea's official Rodong Sinmun newspaper said in a commentary.

It also issued a no-sail warning off its east coast, up to 260 km (160 miles) off the Wonsan area from where it launched a short-range missile in May and a barrage of short-range missiles in 2006.

North Korea has said it would fire an intercontinental ballistic missile if the U.N. Security Council did not apologize

for punishing it for its April rocket launch, widely seen as a disguised missile test that violated U.N. resolutions.

The North appears to be preparing a long-range missile for a test that could be conducted as early as this month. It also appears to be readying for tests of mid-range missiles that could strike anywhere in South Korea or most of Japan.

The Security Council may adopt a new resolution as early as this week, but there is clear division among some members over how tough to be on the reclusive state.

Japanese Foreign Minister Hirofumi Nakasone called for a strong resolution to make it clear that such tests would not be forgiven. But his Chinese counterpart Yang Jiechi said a balanced resolution was needed.

Clinton said last week Washington wanted the strongest possible resolution.

TERRORISM BLACKLIST

The United States removed North Korea from its terrorism blacklist in October in a bid to revive faltering six-party nuclear disarmament talks, prompting the North to take some measures to disable its nuclear facilities.

Pyongyang has since reversed those steps and said it had restarted the nuclear complex -- including reprocessing nuclear fuel to obtain weapons-grade plutonium.

China is seen as nervous of measures that might push its fragile neighbor into collapse, especially at a time when there is uncertainty of the health of leader Kim Jong-il, who is widely believed to have suffered a stroke last year.

Many analysts say the North's belligerence may be aimed largely at a domestic audience, with Kim, 67, using it to bolster his position at home with the military and to better secure the succession for his youngest son Kim Jong-un.

His eldest son, Kim Jong-nam, told Japanese television over the weekend that he would not be surprised to see his brother take over. If he does, it would be the third generation to head the world's first communist dynasty.

(Additional reporting by Kim Junghyun and Jon Herskovitz in Seoul, Yoko Kubota in Tokyo and Doina Chiacu and Caren Bohan in Washington; editing by Jonathan Thatcher and Jeremy Laurence)

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