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US-China ‘phase one’ deal still possible

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Leaders say both countries could sign an initial agreement by the end of the year

HALIFAX, CANADA United States national security adviser Robert O'Brien said on Saturday that an initial trade agreement with China is still possible by the end of the year, but warned Washington would not turn a blind eye to what happens in Hong Kong.

The comments add to growing worries that a Chinese crackdown on anti-government protests in Hong Kong could further complicate the efforts by the US and China to end a prolonged trade war that has roiled global markets and undercut global economic growth forecasts.

"We were hoping to have (a phase one) deal done by the end of the year. I still think that's possible," Mr O'Brien told reporters at a security conference in Halifax.

"At the same time, we're not going to turn a blind eye to what's happening in Hong Kong or what's happening in the South China Sea, or other areas of the world where we're concerned about China's activity," he said.

Asked what would be the reaction of the United States if China cracked down hard on the protests, Mr O'Brien said on Saturday: "I'm hoping that doesn't happen. We've already seen too much violence in Hong Kong."

He added: "The real question is what is the world prepared to do about China if there is that sort of a crackdown. The United States will do its part."

Chinese President Xi Jinping, in rare comments on the trade tensions with Washington, said Beijing wants to work out an interim or "phase one" trade pact, but is not afraid to retaliate when necessary.

Hours later, US President Donald Trump said a trade accord with China is "potentially very close", although he insisted that any deal would have to be weighted to favour the United States after years of trade imbalances with China.

The S&P 500 and Dow Jones indexes eked out gains on Friday after the comments by Mr Trump and Mr Xi, reversing losses triggered earlier in the week by reports that a truce could slip into next year.

Economists say the prolonged dispute between the world's two largest economies is lowering global growth, disrupting supply chains, curtailing investments and curbing business confidence.

"We want to work for a 'phase one' agreement on the basis of mutual respect and equality," Mr Xi told representatives of the New Economy Forum organised by Bloomberg LP, according to a pool report.

"When necessary we will fight back, but we have been working actively to try not to have a trade war. We did not initiate this trade war and this is not something we want."

Mr Trump did not make clear his intentions during the Fox News interview, saying: "We have to stand with Hong Kong but I'm also standing with President Xi." - REUTERS