North Korea sets terms for nuclear halt

(Reuters) - North Korea wants sanctions dropped and the United States to free its overseas bank accounts as preconditions for dismantling its nuclear program, a news agency said on Wednesday, terms likely to become a sticking point in negotiations.

North Korean envoy Kim Kye-gwan made the demands in meetings in Beijing on Tuesday with representatives of other countries in six-party talks on ending the North's nuclear weapons program, South Korea's Yonhap news agency said, citing a source in Beijing.

North Korea agreed to return to the talks -- which involve South Korea, China, Japan, Russia and the United States -- after its first nuclear test last month triggered U.N.-backed sanctions.

U.S. Assistant Secretary of State Christopher Hill was still in preparatory talks on Wednesday afternoon, a U.S. Embassy spokeswoman said.

"Hill is still in meetings," the spokeswoman said. "Hill will not leave Beijing tonight."

It was unclear if there had been any progress.

A proposed trip to Seoul for Wednesday night was canceled to give him time for the Beijing talks, a South Korean government official said.

U.S. officials have said they want North Korea, without condition, to stand by last year's agreement in which it said it was committed "to abandoning all nuclear weapons and existing nuclear programs." In return, the other nations held out economic, political and security incentives.

Pyongyang agreed to return to the talks after Washington said it was willing to address the impoverished state's concerns about financial curbs, tightened in 2005 when U.S. regulators named a Macau bank, Banco Delta Asia, as a conduit for illicit North Korean cash from currency counterfeiting and drug trafficking.

But the North has also said it would be unthinkable for it to resume talks until Washington ended the financial restrictions.

"Kim called on the U.S. at a Tuesday meeting to re-open its frozen accounts at Banco Delta Asia, a lifting of the U.N. resolution against the North and the end of individual sanctions as preconditions for its dismantling its nuclear weapons," Yonhap quoted the source as saying.

U.S. General B.B. Bell, the head of U.S. forces in South Korea, said on Wednesday that the North was building nuclear weapons for political blackmail.

"I'm not worried about their nukes militarily," Bell said. "I see this as a political instrument much more so than I see it as a military instrument.

"The North has built nuclear weapons as an instrument of political policy in order to blackmail nations in the area."

In an address to business leaders in South Korea, Bell said he did not think the government in Pyongyang would collapse soon but that Pyongyang hoped its nuclear ambitions might cause fissures in the U.S.-South Korean military alliance.

In Washington, a State Department official said the primary purpose of Hill's meeting with Kim on Tuesday had been to talk to the North Koreans about what Pyongyang needs to do.

"The operating premise here is good faith actions in return for good faith (actions)," said the official, who declined to be identified.

The Beijing talks are designed to lay the groundwork for a fresh round of six-party talks which Hill has said he hopes can be held in December.

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