HANOI (Reuters) - A second summit between U.S. President Donald Trump and North Korean leader Kim Jong Un collapsed on Thursday over sanctions, and the two sides gave conflicting accounts of what happened, raising questions about the future of their denuclearisation negotiations.

Trump said two days of talks in the Vietnamese capital Hanoi had made good progress in building relations and on the main issue of denuclearisation, but it was important not to rush into a bad deal. He said he had walked away because of unacceptable North Korean demands.

“It was all about the sanctions,” Trump told a news conference after the talks were cut short. “Basically, they wanted the sanctions lifted in their entirety, and we couldn’t do that.”

However, North Korean Foreign Minister Ri Yong Ho told a news conference past midnight and hours after Trump left Hanoi that North Korea had sought only a partial lifting of sanctions “related to people’s livelihoods and unrelated to military sanctions”.

He said it had offered a realistic proposal involving the dismantling of all of its main nuclear site at Yongbyon, including plutonium and uranium facilities, by engineers from both countries.

“This is the biggest denuclearisation step we can take based on the current level of trust between the two countries,” Ri said in a rare exchange between North Korean officials and reporters.

“It’s hard to say there will be something better than what we offered. We may not have such an opportunity again. We need such a first step on the road to complete denuclearisation. Our fundamental stance will never change and even if U.S. seeks further talks, our position won’t change,” Ri said.

North Korean Vice Foreign Minister Choe Son Hui told the same briefing she had the impression that Kim “might lose his willingness to pursue a deal” after the U.S. side rejected a partial lifting of sanctions in return for destruction of Yongbyon, “something we had never offered before”.

White House spokeswoman Sarah Sanders, asked about North Korea’s statements, said the president was aware of the comments and the White House had nothing to add to what Trump said at the Hanoi news conference.

Trump spoke to the leaders of South Korea and Japan on his way back from Hanoi and told them that the United States would continue to work with them and talk to North Korea, Sanders said.

Reporting on the summit, North Korean state media KCNA said Kim and Trump had a constructive and sincere exchange of views and decided to continue productive talks, without mentioning that the talks ended abruptly with no agreement reached.

The meeting was an important chance to build trust and lift the relationship between the United States and North Korea to the next level, it said.

Kim expressed gratitude to Trump for travelling so far and actively putting in efforts to get results, KCNA added.

U.S. Secretary of State Mike Pompeo said the two countries could hold further meetings, but there was no plan to do so immediately.

The United Nations and the United States ratcheted up sanctions on North Korea when the reclusive state conducted repeated nuclear and ballistic missile tests in 2017, cutting off its main sources of hard cash.

NO LUNCH

Trump and Kim were supposed to have had a working lunch at the French-colonial-era Metropole hotel after a morning of meetings.

“Sometimes you have to walk, and this was just one of those times,” Trump said, adding “it was a friendly walk”.

At the same briefing, Trump warned he could also walk away from a trade deal with China if it were not good enough, even as his economic advisors touted “fantastic” progress towards an agreement to end trade disputes.

Failure to reach an agreement on North Korea marks a setback for Trump, a self-styled dealmaker under pressure at home over his ties to Russia and testimony from Michael Cohen, his former personal lawyer who accused him of breaking the law while in office.

The collapse of the talks raised questions about the Trump administration’s preparations and about what some critics see as his cavalier style of personal diplomacy.

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Since their first summit in Singapore in June, Trump has stressed his good chemistry with Kim, but there have been doubts about whether the bonhomie could move them beyond summit pageantry to substantive progress on eliminating a North Korean nuclear arsenal that threatens the United States.

Things had appeared promising when the leaders met on Wednesday, predicting successful talks before a social dinner with top aides.

The White House had been confident enough to schedule a “joint agreement signing ceremony” at the conclusion of talks. Like the lunch, the ceremony did not take the place.

MARKETS HIT

“No deal is a surprise, especially as they were both all smiley last evening,” said Lim Soo-ho, senior research fellow at the Institute for National Security Strategy.

Slideshow ( 22 images )

“But no-deal today doesn’t mean there won’t be one in coming months. It means stakes were way too high for the two leaders to give another wishy-washy statement like they did in Singapore.”

Daniel Russel, the State Department’s former top diplomat for East Asia until early in the Trump administration, said the failure showed Trump had rushed into the summit.

“The Hanoi Summit validates Benjamin Franklin’s axiom that “by failing to prepare, you are preparing to fail,” he said. “The hard diplomatic work of narrowing differences and exploring options had simply not been done, so it is not surprising that the two leaders encountered insurmountable differences.”

The Singapore summit, the first between a sitting U.S. president and a North Korean leader, produced a vague statement in which Kim pledged to work toward denuclearisation of the Korean peninsula.

But little progress followed.

North Korea’s old rival South Korea, which backs efforts to end confrontation on the peninsula, said it regretted that no deal had been reached but the two sides had made progress.

News of the summit collapse sent South Korea’s currency lower and knocked regional stock markets. South Korea’s Kospi index closed 1.8 percent lower, marking the biggest one-day percentage loss since Oct 2018.

Senior Chinese diplomat Wang Yi said difficulties in the talks were unavoidable but the two sides should press on and China would play a constructive role.

Japanese Prime Minister Shinzo Abe said he backed Trump’s decision and wanted a meeting with Kim.

TESTING

Kicking off their second day of talks in Hanoi, Trump said he would be happy as long as North Korea conducted no more nuclear or intercontinental ballistic missile tests.

North Korea has conducted no tests since late 2017, and Trump said Kim had promised him there would be no resumption.

Besides Yongbyon, Trump said there were other facilities he wanted included in a deal - and the North Koreans had been surprised the Americans knew about them - but they had baulked.

U.S. intelligence officials have said there is no sign North Korea would ever give up its entire arsenal of nuclear weapons, which Kim’s ruling family sees as vital to its survival.

Russel said Kim might have thought he could drive a hard bargain, given Trump’s domestic troubles.

“Kim Jong Un is not testing ballistic missiles and nuclear bombs at the moment, but he is testing Donald Trump. Kim may have wanted to see if Trump’s domestic legal and political woes made him desperate enough to take any deal he could get.”

(For live coverage of the summit, click: here)

(GRAPHIC: Vietnam holds Trump-Kim summit - tmsnrt.rs/2VkEAP4)