Angry North Korea threatens retaliation, nuclear test expected SEOUL (Reuters) - A bristling North Korea on Wednesday said it was ready to retaliate in the face of international condemnation over its failed rocket launch, increasing the likelihood the hermit state will push ahead with a third nuclear test. The North also ditched an agreement to allow back inspectors from the International Atomic Energy Agency. That followed a U.S. decision, in response to the rocket launch it says was a disguised long-range missile test, to break off a deal earlier this year to provide the impoverished state with food aid. Pyongyang called the U.S. move a hostile act and said it was no longer bound by its February 29 agreement with Washington, dashing any hopes that new leader Kim Jong-un would soften a foreign policy that has for years been based on the threat of an atomic arsenal to leverage concessions out of regional powers. "We have thus become able to take necessary retaliatory measures, free from the agreement," the official KCNA news agency said, without specifying what actions it might take. Many analysts expect that with its third test, North Korea will for the first time try a nuclear device using highly enriched uranium, something it was long suspected of developing but which it only publicly admitted to about two years ago. "If it conducts a nuclear test, it will be uranium rather than plutonium because North Korea would want to use the test as a big global advertisement for its newer, bigger nuclear capabilities," said Baek Seung-joo of the Seoul-based Korea Institute for Defense Analysis. Defense experts say that by successfully enriching uranium, to make bombs of the type dropped on Hiroshima nearly 70 years ago, the North would be able to significantly build it up stocks of weapons-grade nuclear material. It would also allow it more easily to manufacture a nuclear warhead to mount on a long range missile. The latest international outcry against Pyongyang followed last week's rocket launch, which the United States and others said was in reality the test of a long range missile with the potential to reach the U.S. mainland. North Korea has insisted that the rocket launch, which in a rare public admission it said failed, was meant to put a satellite into orbit as part of celebrations to mark the 100th birthday of President Kim Il-sung, whose family has ruled the autocratic state since it was founded after World War Two. The peninsula has been divided ever since with the two Koreas yet to sign a formal peace treaty to end the 1950-53 Korean War. Recent satellite images have showed that the North has pushed ahead with work at a facility where it conducted previous nuclear tests. While the nuclear tests have successfully alarmed its neighbors, including major ally China, they also showcase the North's technological skills which helps impress a hardline military at home and buyers of North Korean weapons, one of its few viable exports. The North has long argued that in the face of a hostile United States, which has military bases in South Korea and Japan, it needs a nuclear arsenal to defend itself. "The new young leadership of North Korea has a very stark choice; they need to take a hard look at their polices, stop the provocative action," U.S. Secretary of State Hillary Clinton said at a news conference in Brazil's capital. The Swiss-educated Kim Jong-un, who is in his late 20s, rose to power after his father's death last December. The country's propaganda machine has since made much of his physical likeness to his revered grandfather, the first leader and now North Korea's "eternal president." But hopes that the young Kim could prove to be a reformer have faded fast. In his first public speech on Sunday, the chubby leader made clear that he would stick to the pro-military policies of his father that helped push the country into a devastating famine in the 1990s. Kim is surrounded by the same coterie of generals that advised his father and he oversaw Sunday's mass military parade. He urged his people and 1.2 million strong armed forces to "move forward to final victory" as he lauded his grandfather's and father's achievements in building the country's military. Siegfried Hecker, a U.S. nuclear expert who in 2010 saw a uranium enrichment facility in North Korea, believes the state has 24-42 kg (53 to 95 pounds) of plutonium, enough for four to eight bombs. Production of plutonium at its Yongbyon reprocessing plant has been halted since 2009 and producing highly enriched uranium would simultaneously allow Pyongyang to push ahead with its nuclear power program and augment its small plutonium stocks that could be used for weapons, Hecker says. "I believe North Korean scientists and engineers have been working to design miniaturized warheads for years, but they will need to test to demonstrate that the design works: no nuclear test, no confidence," Hecker said in a paper last week. Unlike the claim that Pyongyang can make that its space launch is purely for civilian purposes, there is no such civilian cover for a nuclear test. It is purely for military reasons. Additional reporting by Choonsik Yoo and Jack Kim; Editing by Jonathan Thatcher