HANOI, May 23 - U.S. President Barack Obama announced on Monday that Washington will fully lift an embargo on sales of lethal arms to Vietnam, underlining warming relations between the former foes amid rising tensions with Beijing over the East Vietnam Sea.

At a lavish state luncheon in Hanoi, Vietnamese President Tran Dai Quang toasted Obama's first visit to the country as the arrival of a warm spring after a cold winter.

Obama, the third U.S. president to visit Vietnam since ties were restored in 1995, has made a strategic 'rebalance' towards Asia-Pacific a centerpiece of his foreign policy.

Vietnam, where the United States was at war until 1975, has become a critical part of that strategy amid concerns about China's growing military might and its sovereignty claims in the East Vietnam Sea.

The decision to lift the arms trade ban, which followed intense debate within the Obama administration, suggested that U.S. concerns about China's assertiveness outweighed arguments that Washington would lose leverage for reforms.

Obama told a joint news conference with Quang that disputes in the East Vietnam Sea should be resolved peacefully and not by whoever "throws their weight around", but insisted that the arms embargo move was not linked to China.

"The decision to lift the ban was not based on China or any other considerations, it's based on our desire to complete what has been a lengthy process of moving towards normalization with Vietnam," he said, adding later that his visit to a former foe showed "hearts can change and peace is possible".

He said the sale of arms would be made on a case-by-case basis.

Flourishing trade ties

Though the parties that run China and Vietnam officially have brotherly ties, China's brinkmanship has forced Vietnam to recalibrate its defence strategy.

The lifting of the U.S. embargo will tighten the strategic pressure on China while deepening Vietnam's relationship with the United States. It will also provide Vietnam with leverage in future arms deals with traditional weapons suppliers, particularly its long-time security patron, Russia.

While Vietnam has recently obtained submarines equipped with land-attack missiles, advanced air defence radars and state-of-the-art jet fighters from other nations, it was likely to seek advanced surveillance and intelligence systems from the United States, said Collin Koh, a military expert at Singapore's S Rajaratnam School of International Studies.

"This is a really cutting-edge but niche field that will help Vietnam better integrate its various forces - and the U.S. can really help fill this gap," Koh said.

Lifting the ban will likely upset China, which sees U.S. support for rival East Vietnam Sea claimants like Vietnam and the Philippines as interference and an attempt to establish hegemony in the region. Washington insists its priority is ensuring freedom of navigation and flight.

China's foreign ministry said after the announcement in Hanoi that it hoped the development in relations between the United States and Vietnam would be conducive to regional peace and stability.

Underlining the burgeoning commercial relationship between the United States and Vietnam, one of the first deals signed on Obama's trip was an $11.3 billion order for 100 Boeing planes by low-cost airline VietJet.

China is Vietnam's biggest trade partner and source of imports. But trade with the United States has swelled 10-fold over the past two decades to about $45 billion, and Vietnam is now Southeast Asia's biggest exporter to America.

In the commercial hub, Ho Chi Minh City, Obama will on Tuesday meet entrepreneurs and tout a Trans-Pacific Partnership trade deal he has championed, in which Vietnam would be the biggest beneficiary of the 12 members.

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