SEOUL - The United States has told South Korea it is preparing financial measures to punish North Korea for illicit weapons trade and counterfeit activities in the wake of its nuclear test last week, a newspaper report said on Friday.

North Korea has been ratcheting up regional tensions since it fired a long-range rocket over Japan in April, and on Thursday the hermit state put two female U.S. journalists on trial accused of illegally entering its territory with hostile intent.

Analysts say the pair, who were working for the Current TV network co-founded by former U.S. Vice President Al Gore, have become bargaining chips in high-stakes negotiations with the United States, which has long sought to end the North's nuclear ambitions.

U.S. Deputy Secretary of State James Steinberg, who was due to fly to China later, has been on a four-day visit to Seoul accompanied by a senior Treasury official who oversaw previous financial punishment of the North over counterfeiting, money laundering and drug-running.

The U.S. delegation led by Steinberg explained when visiting President Lee Myung-bak and others Washington's own sanctions against the North centered around financial sanctions, the Chosun Ilbo daily quoted a presidential Blue House official as saying.

The delegation included Stuart Levey, undersecretary at the U.S. Treasury for terrorism and financial intelligence, who was in the same position in the previous U.S. administration that imposed sanctions on a Macau bank which effectively shut off the North's access to the international financial system.

If BDA (Banco Delta Asia in Macau) was against a single bank, this time it is about cutting off transactions with banks that are suspected of being involved in the North's WMD (weapons of mass destruction) trade, the newspaper report said.

The 2005 crackdown on BDA froze $25 million in funds of Pyongyang's leadership. Most banks around the world steered clear of North Korean funds as a result, fearful of being snared themselves by U.S. financial authorities.

Bankers at the time said that as a result North Korea was forced to move its money around in suitcases of cash.

The North boycotted six-party nuclear disarmament talks, involving the two Koreas, the United States, Russia, Japan and China, until Washington executed an elaborate scheme to transfer the money to the North in 2007.

SUPERNOTES

South Korean media reports this week have said that so-called supernotes -- high quality counterfeit U.S. dollars from the North -- have surfaced recently in the southern port city of Busan. There has been no official comment.

North Korea fired a long-range rocket in early April and conducted its second nuclear test last month, drawing international condemnation. The U.N. Security Council is discussing a new resolution over the nuclear test.

Steinberg reportedly said while meeting Lee that Washington would not repeat the previous mistake of rewarding Pyongyang's leaders with negotiations for its military provocations.

The Chosun Ilbo newspaper, quoting a diplomatic source, also said Gore may visit Pyongyang as early as this weekend in an effort to secure the release of the two journalists once a widely-expected guilty verdict has been delivered.

North Korea's KCNA news agency said the trial of Euna Lee and Laura Ling, who were arrested in March near the border with China while working on a story, would begin on Thursday, but has not reported on the proceedings.

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