By Jeff Mason and Josh Smith

HANOI (Reuters) – A second summit between U.S. President Donald Trump and North Korea leader Kim Jong Un collapsed on Thursday over sanctions on Pyongyang, and the two sides gave conflicting accounts of what led to the failure, raising questions about the future of denuclearization talks.

Trump said two days of talks in the Vietnamese capital Hanoi had made good progress in building relations and on the main issue of denuclearization, 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 said at 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 and had offered a realistic proposal, including the dismantling of its main nuclear site at Yongbyon.

The United States demanded “one more” measure beyond dismantling Yongbyon, Ri said. He said if Washington partially removed sanctions, North Korea could permanently end all nuclear material production, including plutonium and uranium, under U.S. observation.

“This is the biggest denuclearization step we can take based on the current level of trust between the two countries,” Ri said in a rare exchange between a North Korean official and reporters. “In fact, as we take steps toward denuclearization, the most important issue is security but we thought it would be more burdensome for the United States to take military-related measures, which is why we saw partial lifting of sanctions as corresponding action.”

North Korea’s position would not change, even if Washington proposed further talks, Ri said.

The White House did not immediately respond to a request for comment on the minister’s remarks.

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.

Trump and Kim cut short their talks, skipping a planned 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”.

Failure to reach an agreement 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.

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 more 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.

“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&rsquo’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 denuclearization of the Korean peninsula.

But little progress followed.

News of the summit failure 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.

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.

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.

There was no indication of when Trump and Kim, or their negotiators, might meet again.

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

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.

Trump said he and Kim had discussed dismantling Yongbyon, which Kim was willing to do, but Kim had wanted sanctions relief first.

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.

TESTING TRUMP?

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,” he said.

Trump had indicated a more flexible stance in the run-up to the Hanoi summit, prompting some critics to warn that he risked squandering leverage over North Korea if he gave away too much.

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

(Reporting by Soyoung Kim and Jeff Mason in HANOI; Additional reporting by Soyoung Kim, Joyce Lee, Jeongmin Kim, Hyonhee Shin, Jack Kim, James Pearson, Mai Nyugen, Ju-min Park, Khanh Vu in HANOI, Ben Blanchard in BEIJING, David Brunnstrom and Matt Spetalnick in WASHINGTON; Editing by Robert Birsel, Lincoln Feast and Grant McCool)