SEOUL (Reuters) - North Korea defied international condemnation of its latest nuclear test by firing three short-range missiles off its coast on Tuesday and major powers considered tougher action against the isolated communist state.

With tension in the region high, South Korea said it would join a U.S.-led initiative to intercept ships suspected of carrying weapons of mass destruction, something Pyongyang has warned it would consider a declaration of war.

South Korea’s Yonhap news agency quoted a government source in Seoul as saying the North had test-fired one surface-to-air and one surface-to-ship missile off its east coast. The missiles had a range of about 130 km (80 miles).

Yonhap later reported that Pyongyang had fired a third short-range rocket on Tuesday.

North Korea also fired three short-range missiles on Monday and South Korean media quoted government sources as saying further missile tests were possible.

Monday’s nuclear test, the North’s second after one in 2006, drew sharp international condemnation and U.S. President Barack Obama said Pyongyang’s nuclear arms program threatened international security.

The nuclear test raised concern about North Korea spreading its weapons to other countries and groups. The United States has accused it of trying try to sell nuclear know-how to Syria and others.

“Another risk is that the North Koreans might peddle some plutonium, or peddle some technology to terrorist groups, that would also be very, very serious,” Hans Blix, former head of the International Atomic Energy Agency, told the BBC.

Obama assured South Korean President Lee Myung-bak of Washington’s unequivocal commitment to defense on the divided peninsula, where some two million troops face off.

UN RESOLUTION “WITH TEETH”

North Korea’s actions took a toll on Seoul’s jittery financial markets, fearing the impact of its growing belligerence in a region which accounts for a sixth of the global economy.

South Korean stocks and the won currency wobbled for a second day, with the main KOSPI share index ending the day more than 2 percent lower. The won fell almost one percent against the dollar, although many traders said the market was becoming less concerned by North Korea.

In New York, ambassadors from the five permanent members of the United Nations Security Council plus Japan and South Korea met to work on resolution meant to add pressure to Pyongyang to rein in its nuclear program.

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After the meeting, U.S. Ambassador to the United Nations Susan Rice told reporters that negotiations on a resolution “will indeed take some time.”

She told CNN that Washington wanted “a strong resolution with teeth... Those teeth could take various different forms. They are economic levers, they are other levers that we might pursue.”

U.S. State department spokesman Ian Kelly said North Korea would “pay a price” if it did not reverse its course but said the door was still open for it to resume long-running six-party talks meant to draw the reclusive state out of its isolation.

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A U.S. Treasury Department official said on condition of anonymity that Washington was “reviewing our options” for further financial sanctions against Pyongyang.

There is little more Washington can do to deter the North, which has been punished for years by international sanctions and is so poor that it relies on aid to feed its 23 million people.

U.N. diplomats said it was clear that China, a veto-wielding permanent council member, opposed new penalties but might accept demands for tougher enforcement, and possibly an expansion, of existing sanctions. So far only the French delegation has publicly called for new U.N. sanctions.

PYONGYANG BLAMES U.S.

Pyongyang said the United States was the aggressor, its usual justification for making nuclear arms. “Our army and people are fully ready for battle ... against any reckless U.S. attempt for a preemptive attack,” said its KCNA news agency.

Analysts say Pyongyang’s military grandstanding was partly aimed at tightening leader Kim Jong-il’s grip on power so he can better engineer his succession. Many speculate he wants his third son to take over.

For China, an immediate concern is a possible breakdown of order inside the ostracized state, which could send a flood of North Korean refugees across its border.

China is believed to want to bring North Korea back to the six-party talks, also involving South Korea, Japan, the United States and Russia, to make it give up a nuclear weapons program in return for aid and an end to its years as a pariah state.

Analysts say North Korea, which now spurns those talks, wants to use its nuclear muscle as leverage in dealing with Washington.

A North Korean diplomat told the 65-nation U.N.-sponsored Conference on Disarmament in Geneva that denunciations of its nuclear test could prevent it from supporting the group’s moves to curb production of nuclear bomb-making material, jeopardizing the start of global talks on the issue.

A number of analysts said 67-year-old leader Kim, who is widely thought to have suffered a stroke last year, hopes his defiant weapons tests will help him secure support from the hard-line military for his chosen successor.

Kim was named successor by his father and the country’s founding president Kim Il-sung, but has carefully avoided putting any of his three sons in the limelight.