North Korea has been making preparations for a third nuclear test that could come in May or June, South Korean broadcaster YTN reported today, quoting an unnamed diplomatic source.

North Korea has boycotted international nuclear disarmament talks for over a year and put conditions on its return that include ending U.N. sanctions imposed after its last test in May 2009 that dealt a severe blow to its staggering economy.

The preparations began in February and involve a level of technical proficiency that is significantly upgraded from the first two tests, considered partial successes at best, YTN quoted the source familiar with the issue as saying.

A third test would improve North Korea's ability to make nuclear weapons but also decrease its supply of fissile material, thought to be enough for six to eight nuclear bombs, experts say.

South Korean foreign ministry officials were not immediately available to comment on the report.

Leader Kim Jong-il is expected to soon depart for China, his destitute state's biggest backer and the closest thing it can claim as a major ally, for talks seen as being aimed at reviving the dormant six-country nuclear discussions hosted by Beijing.

Ratings agency Standard & Poor's told Reuters last week it saw persistent tensions with North as the main constraint on South Korean ratings, still kept below the level seen before the Asian financial crisis of the 1990s.

Market players, who have grown used to the North's sabre rattling, said the report had no major impact on trading. The North's two previous nuclear tests lead to brief falls in local shares and the Korean won, but losses were quickly reversed.

Tensions were raised on the troubled peninsula when a South Korean naval ship exploded and sank last month near a contested sea border with North Korea, killing 46. South Korea is looking into whether the North attacked the ship.