N.Korea may consider H-bomb test in Pacific, Kim calls Trump "deranged"

Christine Kim and Steve Holland

(Adds Chinese foreign ministry comments; paragraphs 14, 15, 21)

* Kim says Trump's comments confirm nuclear path is the right one

* Kim promises "highest level of hard-line countermeasure"

* Trump orders fresh U.S. sanctions on North Korea

* North may consider Pacific hydrogen bomb test - foreign minister

* France says won't go to Winter Olympics if security at risk

SEOUL/NEW YORK, Sept 22 (Reuters) - North Korea said on Friday it might test a hydrogen bomb over the Pacific Ocean after U.S. President Donald Trump vowed to destroy the reclusive country, with leader Kim Jong Un promising to make a "mentally deranged" Trump pay dearly for his threats.

Kim did not specify what action he would take against the United States or Trump, with whom he has traded insults in recent weeks. South Korea said it was the first direct statement of its kind by a North Korean leader.

However, Kim's foreign minister, Ri Yong Ho, said in televised remarks North Korea could consider a hydrogen bomb test of an unprecedented scale over the Pacific Ocean.

Ri, who was talking to reporters in New York ahead of a planned address later this week, also said he did not know Kim's exact thoughts.

Japan, the only country ever to suffer an atomic attack, described the threat as "totally unacceptable".

Trump said in his first address to the United Nations on Tuesday he would "totally destroy" North Korea, a country of 26 million people, if it threatened the United States and its allies, and called Kim a "rocket man" on a suicide mission.

Kim said the North would consider the "highest level of hard-line countermeasure in history" against the United States and that Trump's comments had confirmed his own nuclear programme was "the correct path".

Pyongyang conducted its sixth and largest nuclear test on Sept. 3 and has launched dozens of missiles this year as it accelerates a programme aimed at enabling it to target the United States with a nuclear-tipped missile.

"I will surely and definitely tame the mentally deranged U.S. dotard with fire," Kim said in the statement carried by the KCNA state news agency.

"SLEEPWALKING INTO WAR"

In a separate report, KCNA made a rare criticism of official Chinese media, saying their comments on the North's nuclear programme had damaged ties and suggested Beijing, its only major ally, had sided with Washington.

Singling out the official People's Daily and its more nationalistic sister publication, the Global Times, KCNA said Chinese media was "openly resorting to interference in the internal affairs of another country" and driving a wedge between the two countries.

The escalating rhetoric came even as U.N. Secretary-General Antonio Guterres called for statesmanship to avoid "sleepwalking" into a war.

South Korea, Russia and China all urged calm.

Asked whether China had spoken to North Korea about the latest threat, foreign ministry spokesman Lu Kang said the North was very clear about its neighbour's opposition to the repeated nuclear tests.

"All relevant sides should exercise restraint and dedicate themselves to easing the situation rather than irritating each other," he said.

However, the rhetoric was starting to rattle some in the international community. French Sports Minister Laura Flessel said France's team would not travel to the 2018 Winter Olympic Games in South Korea if its security could not be guaranteed.

The 2018 Games are to be staged in Pyeongchang, just 80 km (50 miles) from the demilitarised zone between North and South Korea, the world's most heavily armed border.

Asian stocks fell, and the Japanese yen and Swiss franc gained, on the possibility of a hydrogen bomb test in the Pacific.

MSCI's broadest index of Asia-Pacific shares outside Japan handed back earlier gains and was down 0.4 percent.

MORE TIME

In Thursday's sanctions announcement, Trump stopped short of going after Pyongyang's biggest trading partner, China, praising as "tremendous" a move by its central bank ordering Chinese banks to stop doing business with North Korea.

Asked about the order on Friday, China's foreign ministry spokesman Lu said, "As far as I understand, the situation you have just mentioned does not accord with the facts.

"In principle, China has always fully and strictly enforced U.N. resolutions and accepted our international obligations".

He did not elaborate.

The additional sanctions on Pyongyang, including on its shipping and trade networks, showed Trump was giving more time for economic pressure to weigh on North Korea after warning about the possibility of military action on Tuesday.

Asked ahead of a lunch meeting with the leaders of Japan and South Korea on Thursday if diplomacy was still possible, Trump nodded and said: "Why not?"

Trump said the new executive order on sanctions gives further authorities to target individual companies and institutions that finance and facilitate trade with North Korea.

It "will cut off sources of revenue that fund North Korea's efforts to develop the deadliest weapons known to humankind", Trump said.

The U.S. Treasury Department now had authority to target those who conduct "significant trade in goods, services or technology with North Korea".

Trump did not mention Pyongyang's oil trade.

The White House said North Korea's energy, medical, mining, textiles, and transport industries were among those targeted and that the U.S. Treasury could sanction anyone who owns, controls or operates a port of entry in North Korea.

"ON NOTICE"

U.S. Treasury Secretary Steven Mnuchin said banks doing business in North Korea would not be allowed to operate in the United States.

"Foreign financial institutions are now on notice that going forward they can choose to do business with the United States or with North Korea, but not both," Mnuchin said.

The U.N. Security Council has unanimously imposed nine rounds of sanctions on North Korea since 2006, the latest this month capping fuel supplies to the isolated state.

South Korean President Moon Jae-in, who addressed the U.N. General Assembly, said sanctions were needed to bring Pyongyang to the negotiating table, but Seoul was not seeking North Korea's collapse.

"All of our endeavours are to prevent war from breaking out and maintain peace," Moon said. He warned the nuclear issue had to be managed in a stable fashion, so that "accidental military clashes will not destroy peace".

The United States and South Korea are technically still at war with North Korea because the 1950-53 Korean conflict ended with a truce and not a peace treaty.

The North accuses the United States, which has 28,500 troops in South Korea, of planning to invade and regularly threatens to destroy it and its Asian allies.

(Additional reporting by Linda Sieg in Tokyo, Michael Martina, Ben Blanchard and Christian Shepherd in BEIJING, David Brunnstrom, Michelle Nichols and Arshad Mohammed in NEW YORK, Jeff Mason, Susan Heavey, Doina Chiacu, Eric Walsh and Tim Ahmann in WASHINGTON, and Soyoung Kim in SEOUL; Writing by Yara Bayoumy and Lincoln Feast; Editing by Paul Tait and Clarence Fernandez)

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