By Ankur Banerjee

SINGAPORE (Reuters) - The yen slipped to a fresh three-week low on Tuesday as traders pondered the Bank of Japan's steps last week to tweak its yield curve control policy, while the Australian dollar was soft ahead of the Reserve Bank of Australia's policy decision.

The yen has been on a wild ride since Friday, when the BOJ took another step toward a slow shift away from decades of massive monetary stimulus, saying it would offer to buy 10-year Japanese government bonds at 1.0% in fixed-rate operations, instead of the previous rate of 0.5%.

The Asian currency touched a low of 142.80 per dollar. It was last at 142.66 per dollar, down 0.26%. Japan's benchmark 10-year government bond yield surged on Monday to a nine-year high, leading the central bank to conduct additional purchase operations to cap its rise.

"Markets could test just how 'flexible' the BOJ will be in the months ahead," said Carlos Casanova, senior Asia economist at UBP in Hong Kong, in a note, adding the subtle changes suggest that the BOJ may be gearing up to changing the YCC target in 2023.

"As the new line in the sand is 1%, it would make sense to broaden the YCC band by this level."

Investor attention during Asian hours will be on the policy decision from the Reserve Bank of Australia.

Markets generally expect policymakers to hold rates steady but a slim majority of economists favour a hike, arguing that inflation is likely to remain sticky for quite some time. The Australian dollar eased 0.06% to $0.672, having risen 0.8% in July.

Commonwealth Bank of Australia (OTC:CMWAY) strategist Kristina Clifton said the RBA decision is likely to be another close call, noting history shows that if the RBA hikes when they are not fully expected to then the Aussie can rise around 0.8%.

"However, we expect any post RBA strength in Aussie to be short lived given the weak global economic outlook." 

Meanwhile, Federal Reserve survey data released on Monday showed U.S. banks reported tighter credit standards and weaker loan demand from both businesses and consumers during the second quarter.

The Fed's quarterly Senior Loan Officer Opinion Survey, or SLOOS, also showed that banks expect to further tighten standards over the rest of 2023, adding to further evidence that rising interest rates are having an impact on the economy.

Tight lending standards can amplify the effects of rising interest rates and contribute to a U.S. recession later this year, CBA's Clifton said.

Against a basket of currencies, the dollar rose 0.059% at 101.93, flirting with a fresh three-week peak. The index fell 1% in July.

Meanwhile, Sterling was last at $1.2827, down 0.08% on the day, having gained 1.1% in July. Bank of England's policy meeting on Thursday is in the spotlight, with markets evenly divided between a 25- and 50-basis-point increase.

The euro was down 0.06% at $1.0986, while the kiwi eased 0.14% to $0.620.

BEIJING (Reuters) -China on Monday announced export controls on some drones and drone-related equipment, saying it wanted to safeguard "national security and interests" amid escalating tension with the United States over access to technology.

The restrictions on equipment, including some drone engines, lasers, communication equipment and anti-drone systems, will take effect on Sept. 1, the commerce ministry said.

The controls also affect some consumer drones, and no civilian drones can be exported for military purposes, a ministry spokesperson said in a statement.

"China's modest expansion of the scope of its drone control this time is an important measure to demonstrate our stance as a responsible major country, to implement global security initiatives, and maintain world peace," the unidentified spokesperson said.

Authorities had notified relevant countries and regions, the spokesperson said.

China has a large drone manufacturing industry and exports to several markets, including the United States.

The Department of Defense and Commerce Department did not immediately respond to requests for comment.

Congress in 2019 banned the Pentagon from buying or using drones and components manufactured in China.

U.S. lawmakers have said that more than 50% of drones sold in the U.S. are made by Chinese-based company DJI, and they are the most popular drone used by public safety agencies.

DJI said on Monday it always strictly complied with and enforced laws and regulations of the countries or regions in which it operates, including China's export control regulatory requirements.

"We have never designed and manufactured products and equipment for military use, nor have we ever marketed or sold our products for use in military conflicts or wars in any country," the drone maker added.

A German retailer in March 2022 accused DJI of leaking data on Ukrainian military positions to Russia, which the company rejected as "utterly false".

China's commerce ministry said in April this year that U.S. and Western media were spreading "unfounded accusations" that it was exporting drones to the battlefield in Ukraine, adding the reports were an attempt to "smear" Chinese firms and it would continue to strengthen export controls on drones.

The drone export curbs come after China announced export controls on some metals widely used in chipmaking last month, following moves by the United States to restrict China's access to key technologies, such as chipmaking equipment.

By Kevin Buckland

TOKYO (Reuters) - Japan's benchmark bond yield soared to a nine-year high and the yen rallied after the Bank of Japan's decision on Friday to conduct its yield curve control (YCC) policy more flexibly.

The BOJ maintained guidance allowing the 10-year yield to move 0.5% around the 0% target, but said those would now be "references" rather than "rigid limits".

To drive the point home, in a second fixed rate bond-buying operation on the day, the central bank offered to purchase the 10-year note at a yield of 1.0%, instead of the previous rate of 0.5%.

"By raising the upper limit for the fixed rate operations to 1%, the BOJ effectively widened the 10-year target band," said Naomi Muguruma, senior market economist at Mitsubishi UFJ (NYSE:MUFG) Morgan Stanley (NYSE:MS) Securities. "It made a stealth move in that sense."

Policymakers left the short-term interest rate target at -0.1.

The 10-year JGB yield spiked to 0.575% for the first time since September 2014 before easing slightly to 0.55%. Ten-year JGB futures dived to the lowest since mid-March at one point.

The yen, which swung violently immediately after the announcement as traders struggled to fully grasp its implications, eventually extended gains against the dollar to be up as much as 1.05% at 138.05. It had initially flipped to a 1.2% loss, sliding as far as 141.20. It last stood at 139.08.

The announcement came right before stocks reopened for the afternoon session, and the Nikkei share average began by aggressively paring the morning's losses before then reversing course and diving as much as 2.6%. The benchmark index ended the day down just 0.4% at 32,759.23.

The Nikkei was buoyed by financial shares, with the Tokyo Stock Exchange's banking index surging 4.6% to an eight-year high on the prospect of a steeper yield curve that would revive profit from lending.

The Nikkei's top seven stocks were all banks or life insurers, led by a 8.2% jump for Resona Holdings.

"The policy decision is indeed ambiguous," which explains the initial volatility across asset classes, said Richard Kaye, a portfolio manager at Comgest, which manages $4.3 billion under its Japanese funds.

However, Kaye said he is avoiding the "tired" bank trade.

"We focus rather on the stabilisation of the yen, which has been a hostage of the sovereign yield gap with the U.S., and therefore domestic economy beneficiaries in Japan," particularly small caps, he said.

The BOJ has been under pressure from investors all year to loosen yield controls, with wages and consumer prices rising. Data released on Friday showed core consumer inflation in Japan's capital remained well above the central bank's 2% target.

In its updated outlook report, the BOJ raised this year's core consumer inflation forecast to 2.5% from the 1.8% projected in April, but cut its fiscal 2024 forecast to 1.9% from 2.0% and maintained its 1.6% estimate for 2025.

At the same time, the central bank acknowledged that price expectations were showing signs of heightening again.

"Even though market reaction is choppy, this is a clear sign that the BOJ will take mini steps to tighten policy if inflation pressures remain," said Charu Chanana, a strategist at Saxo Markets in Singapore.

"Effectively, markets will test the 1% cap and that can be bullish for the yen."

\By Joyce Lee

SEOUL (Reuters) - From Intel (NASDAQ:INTC) to Samsung (KS:005930), global chipmakers are celebrating the beginning of the end of a semiconductor supply glut, but the outlook for demand from customers outside the artificial intelligence (AI) industry remains gloomy.

All the major markets for chips - smartphones, PCs and data centres - have shrunk this year, as both corporate customers and consumers scale back spending amid a weak global economy, high inflation and rising interest rates.

This has created an unprecedented oversupply of commodity chips, causing a record combined 15.2 trillion won ($12 billion) first-half operating loss for the world's two largest memory chipmakers, Samsung and SK Hynix.

This glut, however, has started to ease largely due to production cuts and as a decline in PC shipments eased to 11% in the June quarter compared to a 30% slump in each of the previous two quarters, data from tech analysts Canalys showed.

The smartphone market is also improving, with cellphone shipments falling 8% in the June quarter, versus 14% in the first quarter, according to research firm Counterpoint.

"Demand is recovering very gradually," Woohyun Kim, chief financial officer at SK Hynix, said on an earnings call this week.

"The recent improvement in PC shipments has been mainly led by promotions and low-end models, meaning it provided limited impact on chip demand recovery," he said, adding that shipment forecasts for PCs and smartphones this year have been downgraded from earlier predictions.

While demand for chips to support generative AI has rapidly increased since OpenAI's ChatGPT was launched late last year, the sector still accounts for a small fraction of overall chip demand and is crimping corporate spending on servers, as some companies prioritize investment in AI.

Intel CEO Pat Gelsinger said on Thursday an inventory glut in server central processing units (CPUs) will persist until the second half of the year and that data centre chip sales will decline modestly in the third quarter before recovering in the fourth quarter.

A sluggish recovery in China, the world's biggest chip buyer, is also dampening the overall outlook.

Both Samsung and SK Hynix said China's reopening failed to live up to expectations that it would revive the smartphone market, and that they were extending production cuts of NAND memory chips, widely used in smartphones to store digital data.

Analog chipmaker Texas Instruments (NASDAQ:TXN), which has heavy exposure to China, forecast third-quarter revenue and profit below Wall Street targets on Tuesday, bogged down by a sluggish recovery in end-market demand that has forced clients to cancel orders.

"China was roughly half of sales at the end of fiscal 2022, so China has the largest impact on TI's business," said Logan Purk, analyst at investment firm Edward Jones.

AI WINNERS

Manufacturers of the equipment used to make chips such as KLA Corp and Lam Research (NASDAQ:LRCX) are early winners of the AI boom. Both companies forecast quarterly revenue above Wall Street estimates this week, sending their shares higher.

"Advanced AI servers have significantly higher leading-edge logic, memory and storage content versus traditional servers, and every incremental 1% penetration of AI servers and data centres is expected to drive $1 billion to $1.5 billion of additional (chip equipment) investment," Lam CEO Tim Archer said on a conference call with analysts.

Chipmakers are also increasing production of the high-end chips used to support AI related chips.

SK Hynix said demand for AI server memory had more than doubled in the second quarter compared to the first quarter. Its DRAM chips, which hold information from applications while the system is in use, sold for a higher price in the second quarter versus the first, on average.

The company leads the market in high bandwidth memory (HBM) DRAM used in generative AI. It had a 50% market share in HBM as of 2022, followed by Samsung' 40% and Micron (NASDAQ:MU)'s 10%, according to TrendForce.

($1 = 1,278.7400 won)

By Tom Westbrook

SYDNEY (Reuters) - Asian stocks were off five-month highs and the yen extended a sharp rally on Friday with speculation that the Bank of Japan could take another small step toward dismantling its super-easy stimulus policies.

The BOJ sets policy later in the session. The Nikkei newspaper reported, without citing sources, that policymakers will discuss tweaking the yield control policy to allow 10-year government bond yields above a 0.5% cap in some circumstances.

The yield leapt to 0.505% in early trade.

The yen had earlier jumped about 0.5% on the report, gaining even as the dollar rose elsewhere after strong U.S. economic data and a toned down outlook from the European Central Bank.

The yen was holding about 0.5% higher at 138.83 per dollar in early trade, helped by Tokyo consumer prices rising slightly more than expected and as the risk of a policy surprise spooked short sellers.

"I wouldn't be running short into the BOJ," said Westpac strategist Imre Speizer.

"I think the idea is even a tiny tweak is a big deal for the BOJ. We'll probably get a reaction either way."

MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.4%. Japan's Nikkei opened 1.4% lower though bank shares surged to an eight-year high on the prospect of rising interest income at lenders.

"If the BOJ adjusts its yield curve control program, financial markets will likely take it as the start of a policy tightening cycle regardless of the BOJ's rationale," said Commonwealth Bank of Australia (OTC:CMWAY) strategist Kristina Clifton.

"Under such scenario, we consider dollar/yen ... can lose about two to four yen on the day."

A tweak would also cap what may prove a landmark week for central banks, with markets pricing a better-than-even chance that the Federal Reserve and ECB have made their final hikes of the cycle.

On Thursday, the ECB raised rates by 25 basis points to a 23-year high, as expected, but President Christine Lagarde sent the euro tumbling with talk of a pause in September.

"Do we have more ground to cover? At this point in time I wouldn't say so," Lagarde told reporters. The euro slid nearly 1% overnight and nursed losses at $1.0980 on Friday.

On Wednesday, the Fed had also hiked by 25 bps and Chair Jerome Powell cheered investors when he said the central bank's staff no longer forecast a recession.

Further strong U.S. data, with better-than-expected second-quarter growth figures out overnight drove up longer-end Treasury yields and the U.S. dollar.

Ten-year yields rose 16 basis points and broke above 4%. They were steady at 4.006% in Asia trade.

S&P 500 futures tacked on 0.1% and Nasdaq 100 futures added 0.2%, helped by an after-market jump in shares of Intel (NASDAQ:INTC) which reported a surprise quarterly profit.

Brent crude oil futures slipped slightly from three-month highs to $83.63 a barrel.

By Ellen Zhang and Marius Zaharia

BEIJING/HONG KONG (Reuters) - Cola Yao earns 40% less than last year promoting credit cards for a Chinese state-owned bank, so she buys fewer clothes, less make-up and has cancelled her child's summer swimming classes.

"The cut is severely affecting my life in every aspect," said Yao.

The unexpected austerity comes on the back of China's slowing economy, complicating efforts for Communist Party leaders who pledged this week to boost workers' incomes to revive household consumption, a major policy goal.

Financial firms and their regulators have cut salaries and bonuses after China's top graft-busting watchdog vowed to eliminate "Western-style hedonism" in the $57 trillion sector.

And, some indebted local governments have cut civil servants' pay. Some hospitals and schools, as well as some private businesses facing a drop in sales, have done the same.

It is unclear how many Chinese have had their pay cut this year, but economists warn the high-profile examples are further weighing on already fragile consumer confidence, raising risks of a self-feeding deflationary spiral in the world's second-largest economy.

"Wage cuts will intensify deflationary risks and reduce willingness to spend," said Zhaopeng Xing, ANZ's senior China strategist.

While Chinese still earned 6.8% more on average in the first half of this year than in the same period of 2022, at 11,300 yuan ($1,580) per month, there is little optimism that pace can be maintained.

The Economist Intelligence Unit's Xu Tianchen said that increase was likely driven by rural migrant workers returning to factories after COVID-19 lockdowns, which compensates for subdued pay growth in white-collar jobs.

A survey by recruiter Zhaopin showed average wages offered for new jobs in 38 major cities dropped 0.7% in the second quarter from the same period of 2022, having grown only 0.9% in the first quarter.

In the first six months, total household disposable income, which includes wages and other sources of revenue, rose 5.8%, barely surpassing 5.5% growth in economic output.

To fix one of China's key structural weaknesses, which is that household consumption contributes much less to its economic output than in most other countries, disposable income needs to rise much faster than overall economic growth, analysts say.

For most of the past four decades it was the other way around.

WEAK BARGAINING POWER

Unilateral wage cuts are illegal in China, but complex salary structures offer ways around that.

Yao's monthly earnings dropped to 6,000 yuan because her employer in the eastern city of Hefei raised her performance goals, linked to usage of the credit cards she sells.

Shao, who sold make-up in the eastern city of Suzhou and only gave her surname for privacy reasons, had a choice to leave her company or accept a 50% wage cut. She chose the former, but her colleagues took the hit and also face delayed paycheques.

"Workers are pressed not only by the company, but also by the labour market. Their bargaining power ... is weakened so they tend to accept wage cuts," said Aidan Chau, researcher at Hong Kong-based rights group China Labour Bulletin.

State institutions typically keep base salaries untouched but reduce various allowances, public sector workers say.

A Shanghai doctor surnamed Xu said his public hospital cancelled quarterly bonuses and asked staff to do more overtime.

Xu, who works at a public hospital, saw his pay drop 20% over the last two years.

"The hospital said they have no money," he said.

While he's not struggling financially, the extra work affects his social life so he spends less going out.

Frugality is becoming endemic.

Retail sales in China have yet to return to their pre-pandemic trend and households prefer to save.

New household bank deposits in January-June rose 15% to 12 trillion yuan, equivalent to more than 50% of the total retail sales for the period.

Analysts call it a symptom of financial insecurity among consumers.

"If weak confidence becomes entrenched, it could be self-fulfilling and derail the recovery," said Xiangrong Yu, China chief economist at Citi.

By Balazs Koranyi and Francesco Canepa

FRANKFURT (Reuters) -The European Central Bank raised interest rates for the ninth consecutive time on Thursday, but raised the possibility of a pause in September as inflation pressures show tentative signs of easing and recession worries mount.

Fighting off a historic surge in prices, the ECB has now lifted borrowing costs by a combined 425 basis points since last July, worried that price growth could be perpetuated by both rising costs and wages in an exceptionally tight jobs market.

With Thursday's 25-basis-point move, the ECB's deposit rate stands at 3.75%, its highest level since 2000 - before euro notes and coins were even in circulation. The main refinancing rate was set at 4.25%.

ECB President Christine Lagarde ditched her practice of guiding markets for the next decision and said what would come next was in the balance, even if the central bank was determined to "break the back" of inflation.

She had responded to most of the questions at a press conference by saying all options remained on the table but sent the euro tumbling with a dovish flourish near the end.

"Do we have more ground to cover? At this point in time I wouldn't say so," Lagarde said, almost unprompted, while stressing that the ECB's decisions would depend on the data.

"There is the possibility of a hike (next time). There is the possibility of a pause. It's a decisive maybe." Lagarde said, adding that policymakers were "open-minded" and unified.

Ryan Djajasaputra at Investec said that Lagarde's tone hinted at a pause. "Our main takeaway from today's press conference was that it strengthened our existing view that this is the peak in rates".

Two sources with direct knowledge of the discussion also described a shift in the mood on the Governing Council, with more policymakers than before now worried about a softening of the economy after a year in which concerns about inflation dominated.

Some policymakers currently favour a pause in September, expecting the euro zone to be heading into a recession, while others would prefer to raise borrowing costs again.

An ECB spokesperson declined to comment.

The ECB's earlier policy statement said rates would be set at "sufficiently restrictive levels for as long as necessary," but dropped a reference to the rates having to be "brought" to a level that would cut inflation quickly enough to its 2% target.

Lagarde explained the tweak was "not random or irrelevant".

INFLATION, RECESSION?

The problem is that inflation is coming down slowly and could take until 2025 to fall back to 2%, as a price surge initially driven by energy has seeped into the broader economy via large mark-ups and is fuelling the cost of services.

While overall inflation has halved from October, underlying price growth is hovering near historic highs and may have even accelerated this month.

Lagarde said the risks of so-called "second-round" effects had not worsened since last month.

But record-low unemployment has raised fears that wages will jump as workers seek to recoup real incomes lost to inflation, which is why many investors and analysts had been expecting the ECB to hike again in September pending autumn wage data.

"Because we expect a significant decline in inflation and a recession in the second half of the year, we continue to not forecast a rate hike in September. On the other hand, we doubt the market's view that the ECB will cut rates as early as 2024," said Joerg Kraemer, chief economist at Commerzbank (ETR:CBKG).

The euro tumbled as Lagarde spoke and briefly dipped under $1.10, having risen 0.5% to touch $1.1149 beforehand.

Markets had fully priced in another rate hike just a few weeks ago, but few now see a move in September and markets only are pricing 17 basis points of hikes over the rest of the year.

"The bar for another hike in September is now dependent on upward surprises to inflation numbers, at a time when strong disinflationary forces are in play – so the default position is to keep rates constant for a sustained period," said Neil Mehta, portfolio manager at RBC BlueBay Asset Management.

More tightening would, however, be consistent with comments from policymakers including ECB board member Isabel Schnabel that raising rates too far would be less costly than not enough.

On Wednesday, the U.S. Federal Reserve raised borrowing costs and kept the door open to more rate hikes, though Fed Chair Jerome Powell gave few hints about the September meeting.

Indicators of business, investor and consumer sentiment and bank lending surveys point to a continued deterioration after the euro zone skirted a recession last winter.

And with manufacturing in a deep recession and the previously resilient services sector showing signs of softening despite what is likely to be a superb summer holiday season, it is hard to see where any rebound would come from.

Such weakness, exacerbated by a loss of purchasing power after inflation eroded real incomes, could push inflation down faster than some expect, leaving less work for the ECB.

"We know we are getting closer," Lagarde said, referring the end of the ECB's rate-hike run.

(Additional writing by Marc Jones in London; Editing by Catherine Evans and Paul Simao)

By Jorgelina do Rosario and Rodrigo Campos

LONDON/NEW YORK (Reuters) -Time is running out for Argentina to secure the next tranche of a $44 billion loan with the International Monetary Fund, which it could use to repay the fund older debt due in coming days.

With both sides saying an agreement on policy steps required to release $4 billion from the IMF loan was close, but not quite there yet, and no liquid currency reserves to tap, Buenos Aires may need to use a swap line with Beijing, again, to make a $3.4 billion payment.

THE REVIEW

Under the terms of the $44 billion program agreed in 2022, the funds are released in tranches based on regular reviews of steps Argentina takes to shore up its economy.

Argentina's efforts to shore up its reserves and reduce fiscal deficit are the focus of the current fifth review. The IMF welcomed steps Buenos Aires announced on Monday, which included import taxes and a new set of trade-related and weaker exchange rates to build up reserves in what Goldman Sachs (NYSE:GS) called an "implicit devaluation."

However, potential inflationary impact of such steps means Economy Minister Sergio Massa, who is the ruling coalition's candidate for October presidential elections, will be in no rush to implement any painful measures.

"The government has no appetite to do anything comprehensive in terms of having a full stabilization and adjustment program before the election because obviously that's politically very costly," said Gordian Kemen, head of emerging markets sovereign strategy (West) at Standard Chartered (OTC:SCBFF) Bank. "I think that's the reality that the IMF understands," said Kemen, who is overweight in Argentina's sovereign bonds.

"Our base case has always been they want to get them through the election."

CRUNCH TIME

To access the IMF funds, Argentina first needs to reach a staff level agreement with the Fund on the fifth review, which then has to get signed off by the IMF's executive board.

That is where it gets extremely tight.

Repayment of $2.6 billion is due on July 31 and almost $800 million due on Aug. 1 on a loan from 2018. It is not clear whether the executive board will be able to convene before the summer recess during the first half of August.

The IMF did not respond to a request for comment on the likelihood of a board meeting soon to discuss the Argentina program.

Board members normally have about two weeks to read the documents linked to any staff level agreement before they vote on a review or a new loan.

EMPTY COFFERS

Timing is critical for Argentina, which is almost out of options, given its central bank reserves have been draining for years under strict foreign exchange controls from the government. The dollar shortage got even worse this year because Argentina, a major grains exporter, was hit by the worst drought in six decades.

Gross reserves stand at $25 billion, but the cash-strapped economy's net reserves, discounting liabilities, are over $6 billion in the red.

Argentina made the last IMF payment due end-June partially with its holdings of IMF special-drawing rights (SDRs), but analysts calculated that this has wiped out the country's $1.65 billion in IMF reserve assets.

THE CHINESE OPTION

That leaves a yuan swap line with Beijing, which Latin America's third biggest economy could use to avoid going into arrears with the IMF.

Argentina used $1.1 billion in yuan from a recently extended and expanded swap line with China to complete the June payment to the IMF. According to Buenos Aires-based consultancy Empiria the country has so far used about $3.5 billion out of the nearly $10 billion of freely accessible swap, so will have more than enough to cover its upcoming payments.

FALLING INTO ARREARS

Missing payments would automatically put Argentina in default with the IMF because there is no grace period with the multilateral lender.

Any payment delays of up to 180 days are considered a short-term arrears, according to an IMF working paper. Those can be cleared by simply paying the amount due, but a delay could make financial markets nervous, putting Buenos Aires under more pressure.

By Jihoon Lee

SEOUL (Reuters) - South Korea's export decline likely accelerated in July amid persistently weak demand from China, a Reuters survey showed on Thursday, signalling a bumpy road towards recovery.

Outbound shipments were expected to extend their run of year-on-year losses to a 10th straight month with a 14.5% fall in July from the year before, according to the median estimate of 12 economists in the survey conducted during July 21-26.

That would be more than double the 6.0% loss in June, which was the slowest decline in eight months and had raised hopes for a turnaround in the months to follow.

Most economists cited a weak Chinese economy as the biggest factor weighing on South Korea's exports, along with a slowdown in other major economies, while some also attributed the faster decline to a high base the previous year.

"Exports are still remaining sluggish due to a weaker recovery in the Chinese economy," said Oh Chang-sob, economist at Hyundai Motor Securities.

"While China-bound exports continue to be weak, U.S.-bound shipments are also expected to fall this month," said economist Park Sang-hyun at HI Investment Securities.

In the first 20 days this month, South Korea exported goods worth 15.2% less than the year before, customs agency data showed. Shipments to China and the United States dropped 21.2% and 7.3%, respectively.

South Korea - a bellwether for global trade - is the first major exporting economy to report monthly trade figures, providing clues on the health of world demand.

The survey also showed imports in July likely dropped 24.6% from a year earlier, much faster than 11.7% in June and the worst since September 2009.

Altogether, the country's trade balance is expected to post a second straight monthly surplus. The median forecast was for a $3.11 billion surplus, wider than the $1.13 billion the previous month, when it snapped a 15-month streak of deficits.

South Korea is scheduled to report its full monthly trade figures for July on Tuesday, Aug. 1, at 9 a.m. (0000 GMT).

By Pete Schroeder

WASHINGTON (Reuters) - U.S. regulators are set to propose a rule that could significantly raise capital requirements for larger banks, forcing them to cut costs and retain earnings in an effort to cushion against potential losses that could harm customers and investors.

The proposal, to be unveiled later on Thursday and voted on by the Federal Deposit Insurance Corporation and the Federal Reserve, marks the first in an extensive effort to tighten bank oversight, particularly in the wake of spring turmoil that saw three large financial firms fail.

The rule, which would implement a 2017 agreement by global regulators, aims to overhaul how banks gauge their riskiness, and in turn how much money they must keep on hand.

Industry opponents have already begun to criticize the plan as banks seek to soften, delay, or otherwise derail the government's long-planned effort. They argue the increases are unjustified and economically harmful.

"The banking industry probably didn’t influence the upcoming proposal as much as it wanted. But it’s determined to fight on what it sees as major issues in the months between Thursday and whenever a final rule is approved," Ian Katz, managing director at Washington-based Capital Alpha Partners, said in a research note.

Top officials at banks like JPMorgan Chase (NYSE:JPM) and Morgan Stanley (NYSE:MS) have warned stricter rules could force them to pull back from services or increase fees. Analysts say it could take years of retained earnings to comply, pinching their ability to boost dividends or buy back shares.

In what is expected to be a lengthy and technical proposal, bank regulators want to strengthen how firms measure their risk on lending, trading and internal operations. The proposal would see U.S. regulators implement a previous global agreement via the Basel Committee on Banking Supervision.

Fed Vice Chair for Supervision Michael Barr, who is leading the effort, said he will also seek stricter rules for firms with more than $100 billion in assets, which could include banks such as Citizens Financial (NYSE:CFG) Group, Fifth Third, Huntington and Regions.

Barr, a Democrat picked by President Joe Biden, has argued banks need bigger reserves to guard against unforeseen risks -- such as when several banks faltered earlier this year under heavy unrealized losses as interest rates climbed, forcing government regulators to step in to protect depositors.

"Bank capital is critical," said Dennis Kelleher, president and CEO of Better Markets, which advocates for tougher financial rules. "However, maximizing Wall Street’s bonuses depends on minimizing capital and that’s why Wall Street fights to prevent regulators from requiring them to have enough capital."