By Aziz El Yaakoubi and Maha El Dahan

RIYADH (Reuters) -Saudi Arabia wants to collaborate, not compete, with China, the kingdom's energy minister declared on Sunday, saying he "ignored" Western suspicions over their growing ties.

As the world's top oil exporter, Saudi Arabia's bilateral relationship with the world's biggest energy consumer is anchored by hydrocarbon ties. But cooperation between Riyadh and Beijing has also deepened in security and sensitive tech amid a warming of political ties - to the concern of the U.S.

Asked about criticism of the bilateral relationship during an Arab-China business conference, Prince Abdulaziz bin Salman said: "I actually ignore it because ... as a business person .. now you will go where opportunity comes your way."

"We don't have to be facing any choice which has to do with (saying) either with us or with the others."

Chinese entrepreneurs and investors have flocked to Riyadh for the conference, which came days after a visit by U.S. Secretary of State Antony Blinken.

OIL DEALS

In March, state oil giant Saudi Aramco (TADAWUL:2222) announced two major deals to raise its multi-billion dollar investment in China and bolster its rank as China's top provider of crude.

They were the biggest announced since Chinese President Xi Jinping's visit to Saudi Arabia in December where he called for oil trade in yuan, a move that would weaken the dollar's dominance.

"Oil demand in China is still growing so of course we have to capture some of that demand," Prince Abdulaziz said.

"Instead of competing with China, collaborate with China."

The two nations' momentum has also raised prospects for a successful conclusion to negotiations for a free trade deal between China and the Saudi Arabia-dominated Gulf Cooperation Council (GCC), ongoing since 2004.

Saudi Investment Minister Khalid Al Falih said any agreement would have to protect emerging Gulf industries as the region starts to diversify towards non-oil economic sectors.

"We need to enable and empower our industries to export, so we hope all countries that negotiate with us for free trade deals know we need to protect our new, emerging industries," Falih said, adding he hoped a deal would soon be struck.

By Joe Cash

BEIJING (Reuters) - China's factory gate prices fell at the fastest pace in seven years in May and quicker than forecasts, as faltering demand weighed on a slowing manufacturing sector and cast a cloud over the fragile economic recovery.

As rising interests rates and inflation squeeze demand in the United States and Europe, China is in contrast battling a sharp decline in prices with factories receiving less for their products from key overseas markets.

The producer price index (PPI) for May fell for an eighth consecutive month, down 4.6%, the National Bureau of Statistics (NBS) said on Friday. That was the fastest decline since February 2016 and bigger than the 4.3% fall in a Reuters poll.

"The risk of deflation is still weighing on the economy," said Zhiwei Zhang, chief economist at Pinpoint Asset Management, in a note. "Recent economic indicators send consistent signals that the economy is cooling," he added.

China's economy grew faster than expected in the first quarter, but recent indicators show demand is rapidly weakening with exports, imports and factory activity falling in May.

The consumer price index (CPI) rose 0.2% year-on-year, speeding up from a 0.1% rise in April but, missing a forecast for a 0.3% increase.

Food price inflation, a key driver of CPI, slowed to 1.0% year-on-year from 2.4% in the previous month. On a month-on-month basis, food prices fell 0.7%.

The Australia dollar eased 0.2% to $0.6704, tracking a fall in the Chinese currency yuan after the inflation data.

The government has set a target for average consumer prices in 2023 to be about 3%. Prices rose 2% year-on-year in 2022.

"We still think a tightening labour market will put some upward pressure on inflation later this year, but it will remain well within policymakers' comfort zone," said Julian Evans-Pritchard, head of China economics at Capital Economics in a note.

"The government's ceiling of 'around 3.0%' for the headline rate is unlikely to be tested and we doubt inflation will become a barrier to increased policy support," he added.

UNDER PRESSURE

Policymakers have repeatedly signalled their intention to lean on China's 1.4 billion consumers, after the economy last year reported one of its slowest paces of growth in nearly half a century.

"So far, monetary policy and fiscal policy have remained tight, along with lower income growth, so domestic demand is depressed," said Dan Wang, chief economist at Hang Seng Bank China.

Some economists expect the People's Bank of China (PBOC) to cut rates or release more liquidity into the financial system. The bank cut lenders' reserve requirements ratio in March.

China's biggest banks on Thursday said they had lowered interest rates on deposits, providing some relief for the financial sector and wider economy by easing pressure on profit margins and reducing lending costs.

Analysts have been downgrading their forecasts for economic growth for the year amid continued signs of slowing. The government has set a modest GDP growth target of around 5% for this year, after badly missing the 2022 goal.

By Kevin Buckland

TOKYO (Reuters) - Asia-Pacific equities rose to their highest level since mid-February on Friday, taking cues from an overnight Wall Street rally as market bets firmed for the Federal Reserve to skip a rate hike next week.

Japanese and Australian bond yields followed those on U.S. Treasuries lower, and the dollar remained on the defensive early in the Asian session.

MSCI's broadest index of Asia-Pacific shares added 0.6%, and at one point touched its strongest level since Feb. 16.

Much of that was driven by a 1.66% jump in Japan's Nikkei, which rebounded strongly following its plunge from a 33-year high in the previous session.

Hong Kong's Hang Seng added 0.21%, while mainland Chinese blue chips edged 0.1% higher.

On Wall Street, gains were led by the tech-heavy Nasdaq, which surged 1.27%. The broader S&P 500 rose 0.62%. E-mini U.S. equity futures in Asia pointed to about a 0.1% lower restart for each of the indexes.

Traders now lay 1-in-4 odds for the Fed to raise rates by a quarter point on June 14, versus 75% probability of a pause. However, the market sees a hike as mostly assured by the July 26 decision, laying the odds at about 80%.

Bets for a pause were supported by data overnight showing the number of Americans filing new jobless claims surged to a more than 1 1/2-year high.

Still, some analysts point to surprise rate increases at the Bank of Canada and Reserve Bank of Australia this week as reasons not to be complacent.

"I wouldn't go all in and say we're going to get a rate hike, but I think we should be at least 50% priced," said Tony Sycamore, an analyst at IG Markets in Sydney.

"I know people can point to Fed Chair (Jerome) Powell's comments as being more supportive of a hold than a hike, but there have been some interesting developments since he last spoke," Sycamore added.

"I can't imagine he'd be happy by the increase in core PCE inflation, nor the robust gain in non-farm payrolls."

Powell said on May 19 that it was still unclear if U.S. interest rates will need to rise further, and the risks of overtightening or undertightening had become more balanced.

Two-year Treasury yields, which are extremely sensitive to monetary policy expectations, were little changed at around 4.53% in Tokyo after a 3 basis-point (bp) decline by the New York close. The 10-year yield edged up to 3.73% after tumbling 7 bps overnight.

The U.S. dollar index, which measures the currency against a basket of six major peers, was little changed at 103.34, sticking close to the more than two-week low of 103.29 reached on Thursday.

The dollar added 0.15% to 139.135 yen, after earlier slipping to a one-week low of 138.765.

The euro was flat at $1.0784, just below Thursday's two-week high of $1.0787.

Elsewhere, the Turkish lira extended its decline to a new record low of 23.54 per dollar, even as President Tayyip Erdogan's appointment of a U.S. banker as central bank chief sent a fresh signal for a return to more orthodox policy.

Crude oil remained on the back foot on Friday following a report that the United States and Iran were close to a nuclear deal, although denials from both parties

Optimism for a deal, which reportedly included scope for an additional 1 million barrels per day of Iranian production, had eknocked down West Texas Intermediate (WTI) crude by $3.50 to just shy of $69 at one point on Thursday.

WTI fututes were last 47 cents weaker than Thursday's close at $70.83. Brent crude futures were off 47 cents at $75.49.

ISLAMABAD (Reuters) - Pakistan's government will present its annual budget to parliament on Friday needing to satisfy the IMF to have any chance of securing the release or more bailout money, with the crisis-riven country due to hold elections by November.

The risk of default on sovereign debt is rising, with the economy creaking under twin deficits and record high inflation, which has further dented the popularity of Prime Minister Shehbaz Sharif's coalition ahead of the vote.

The economy could slide closer to the cliff edge as a result of the latest bout of political instability, with former Prime Minister Imran Khan, the main opposition leader, locked in a dangerous struggle with the country's powerful military.

Against the backcloth of this political drama, Finance Minister Ishaq Dar is set to deliver his budget speech to parliament after 4:00 pm (1100 GMT) on Friday.

Some budget figures were announced earlier this week, including development spending of 1,150 billion Pakistani rupees ($4 billion), and an economic growth target of 3.5% for the coming fiscal year.

Sources have also told Reuters that preliminary budget proposals envisaged a fiscal deficit of 7.7% of GDP, with total spending at 14.5 trillion Pakistani rupees ($50.7 billion) and revenue collection at 9.2 trillion Pakistani rupees ($32.2 billion). The proposals also set an inflation target of 21%, well below the record high of nearly 38% inflation recorded in May.

On Thursday, the International Monetary Fund said that it has been discussing the budget with Pakistan.

Sharif's government is hoping to persuade the IMF to unlock at least some of the $2.5 billion left in a $6.5 billion programme that Pakistan entered in 2019 and which expires at the end of this month.

"The focus of discussions over the FY24 budget is to balance the need to strengthen debt sustainability prospects while creating space to increase social spending," Esther Perez Ruiz, the IMF's resident representative for Pakistan, said on Thursday.

Pakistan missed almost all of its economic targets set in the last budget, most notably its growth target, which was initially set at 5%, revised down to 2% earlier this year. Growth is now projected to be just 0.29% for the fiscal year ending June 30.

Foreign exchange reserves have dipped below $4 billion, according to data released by the central bank on Thursday, enough to cover barely a month of imports.

The government has no fiscal space to introduce popular measures that will win it votes or a stimulus to spur flagging economic activity, with limited avenues for raising revenue in the short term and domestic and international debt obligations continuing to mount.

Sharif's coalition could take some comfort the troubles surrounding opposition leader Khan, whose party has suffered a string of defections of key leaders following a crackdown by the military.

Khan was ousted in a parliamentary confidence vote last year, but polls show he remains Pakistan's most popular politician. He is now fighting numerous legal cases, ranging from corruption to incitement and abetting murder that could result in him being barred from contesting the election.

($1 = 286.6200 Pakistani rupees)

By Rae Wee

SINGAPORE (Reuters) - The dollar retreated on Friday, dragged by lower U.S. Treasury yields after a spike in weekly jobless claims raised traders' hopes that a peak in U.S. interest rates was near, as focus turned to the upcoming week packed with central bank meetings.

The number of Americans filing new claims for unemployment benefits surged to the highest in more than 1-1/2 years last week, data on Thursday showed, though layoffs are probably not accelerating as the data covered the Memorial Day holiday, which could have injected some volatility.

Nonetheless, that was enough to knock the U.S. dollar to a more than two-week low against a basket of currencies in the previous session, as investors took the data as a sign that the U.S. labour market was slowing.

The dollar index last stood at 103.35 in early Asia trade on Friday, having lost more than 0.7% in the previous session, its largest daily decline in weeks.

Against the Japanese yen, the greenback dipped to a one-week low of 138.765, tracking a slide in U.S. Treasury yields.

The benchmark 10-year Treasury yield last stood at 3.7295%, after falling 7 basis points on Thursday. The two-year yield, which typically moves in step with interest rate expectations, steadied at 4.5210%. [US/]

"We do think that the U.S., like many economies, will go through a shallow recession this year. So that'll show up in payrolls numbers and jobless claims and these sorts of numbers," said Jarrod Kerr, chief economist at Kiwibank.

Elsewhere, sterling touched a near one-month high of $1.2564, while the kiwi last bought $0.6095.

The Turkish lira tumbled more than 1% against the dollar to a record low of 23.54.

ACTION-PACKED C.BANK WEEK

Markets now turn their attention to the upcoming week which will see the Federal Reserve, the European Central Bank (ECB) and the Bank of Japan (BOJ) announce their interest rate decisions following their respective policy meetings.

The Fed takes centre stage, with money markets leaning toward a pause, though have priced in a 25% chance that the U.S. central bank delivers a 25bp rate hike.

"A slowing U.S. economy gives the Fed room to pause after 500bp of consecutive interest rate rises," said Guillermo Felices, global investment strategist at PGIM Fixed Income.

"The key question for markets is whether the Fed will just skip a hike in June and resume their tightening campaign in July."

Meanwhile, a clear majority of economists polled by Reuters expect the ECB to hike its key interest rates by 25 bps on June 15 and again in July before pausing for the rest of the year as inflation remains sticky.

The euro was last steady at $1.0782, flirting with Thursday's over two-week high of $1.0787.

The Canadian dollar last bought C$1.3365, not far from its one-month high of C$1.3321 hit on Wednesday, while the Aussie similarly stood near a roughly one-month peak at $0.6711.

Both currencies have drawn support from surprise rate increases by their respective central banks this week, which caused markets to revise their expectations for a peak in global interest rates.

By Daren Butler and Ali Kucukgocmen

ISTANBUL (Reuters) -President Tayyip Erdogan on Friday appointed Hafize Gaye Erkan, a finance executive in the United States, to head Turkey's central bank as it prepares to reverse course and tighten policy after years of rate cuts and a simmering cost-of-living crisis.

Erkan, former co-CEO at First Republic Bank (OTC:FRCB) and managing director at Goldman Sachs (NYSE:GS), takes the reins after Erdogan's re-election on May 28 and just under a week after he signalled a pivot away from unorthodoxy with a new cabinet.

The fifth central bank chief in four years, the 43-year-old replaces Sahap Kavcioglu, who spearheaded Erdogan's rate-cutting drive that set off a historic currency crash in 2021 and sent inflation to a 24-year peak above 85% last year.

The announcement of Erkan's appointment in the Official Gazette was accompanied by a decision to appoint Kavcioglu as head of the country's BDDK banking watchdog.

Erkan's leanings are unclear given she has no formal monetary policy experience in her career spanning Wall Street and U.S. corporate boardrooms. She has a Ph.D. from Princeton University in financial engineering.

She was at First Republic from 2014-2021, according to her LinkedIn profile. This year, it became the largest U.S. bank to fail since 2008 after it was seized by regulators and sold to JPMorgan (NYSE:JPM).

ORTHODOX FINANCE MINISTER

Turkey's central bank has had its independence all but stamped out in recent years by Erdogan. A self-proclaimed "enemy" of interest rates, he pressed it to deliver stimulus and was quick to replace governors.

The policy rate was slashed to 8.5% from 19% in 2021, leaving real rates deeply negative and the lira largely managed by dozens of regulations covering credit and foreign exchange.

Yet after Erdogan survived his toughest political test in the May 28 runoff vote, he on Saturday named Mehmet Simsek, a well-respected and orthodox former finance minister, as minister in charge of the economy.

Amid record low foreign reserves of -$5.7 billion, the lira has hit all-time lows this week, plunging 7.2% on Wednesday, and traded at 23.5010 against the dollar after Erkan's appointment.

Analysts said the return of Simsek and the appointment of Erkan set the stage for rate hikes, which could reattract foreign investors after an exodus in recent years.

The apparent U-turn on the economy comes as many analysts anticipate turmoil given depleted foreign reserves, unchecked inflation and wide current account deficits.

The economy's prospects depend on how much independence Erdogan grants Erkan and Simsek, analysts said. In the past, he has embraced orthodoxy, only to quickly double back.

The last central bank governor to raise rates, Naci Agbal, was fired in 2021 after less than five months on the job.

"It is unclear for how long Erdogan may tolerate a more pragmatic stance on the economic front, given the priority he assigns to the March 2024 local elections," said Wolfango Piccoli of Teneo. The ruling AK Party aims to recapture big cities from opposition control in those elections.

Erkan is on Marsh McLennan (NYSE:MMC)'s board and was named CEO at Greystone, a real estate finance and investment firm, last year.

During her career in New York City, she gained a reputation as "tough, smart, and effective," said Kathryn Wylde, CEO of the Partnership for New York City nonprofit, where Erkan once served as a director.

"She is certainly not someone who can be pushed around, but she also can disagree without being disagreeable," Wylde said.

By Leah Douglas

(Reuters) - U.S. Democrat and Republican lawmakers in a Wednesday hearing returned to the issue of work requirements for federal food aid, a major tension point during the U.S. debt negotiations that could resurface as policymakers consider critical farm legislation in the coming months.

Currently, individuals aged 18 to 49 are required to work at least 20 hours per week in order to receive benefits from the Supplemental Nutrition Assistance Program (SNAP) for more than three months over a three-year period. The debt plan signed by President Joe Biden on June 5 would raise that upper age limit to 54.

Democrats and anti-hunger groups strongly opposed the changes during negotiations, saying that work requirements are ineffective, punitive and could increase hunger in America. The final law will affect fewer people than earlier versions presented by House Speaker Kevin McCarthy.

Yet after the bill passed the House on June 1, McCarthy signaled the conversation was not over. "Let's go get the rest of the work requirements," he said in an interview.

At a nutrition-focused hearing of the House Agriculture Committee on Wednesday, Democratic members fumed about the debt plan and warned against any further changes to SNAP.

The committee, alongside its Senate counterpart, is engaged in a months-long process to pass a new farm bill, which funds U.S. farm commodity, conservation and nutrition programs like SNAP.

"Hunger should not be a political issue," said Representative Jahana Hayes, a Connecticut Democrat. "[Republicans'] obsession with cutting food assistance is jarring."

Republicans suggested, meanwhile, that the farm bill should include further SNAP reforms. During negotiations over the debt plan, Republicans argued that work requirements would encourage more low-income people to get jobs and reduce their dependence on federal aid.

The farm bill is passed every five years and is often the site of partisan tensions over nutrition spending.

About 80% of the upcoming farm bill - which the Congressional Budget Office projected in May will cost $1.5 trillion over 10 years - will be spent on nutrition programs.

By Devayani Sathyan

BENGALURU (Reuters) - The Reserve Bank of Australia (RBA) will hike its key interest rate once more by the end of September to 4.35% following a surprise hike on Tuesday and then hold policy for the rest of the year, according to economists in a snap Reuters poll.

Having paused rate increases in April, the central bank resumed tightening in June, underscoring the challenges of managing inflation.

Australian inflation fell to 7.0% last quarter but the latest monthly data showed a rise to 6.8% in April from 6.3% in March, still more than double the RBA's target range of 2-3%, suggesting it has more work to do.

Following confusion in recent months over whether rates might go higher, Governor Philip Lowe in a speech on Wednesday said "more tightening may be required", adding his "patience has a limit and (inflation) risks are starting to test that limit".

Around three quarters of economists polled, 20 of 26, forecast the RBA would hike by at least 25 basis points to 4.35% by the end of September. The remaining six forecast the cash rate to stay at 4.10%.

But nearly two thirds, 16 of 26, expect the RBA to hold fire at its next meeting on July 4, with 10 forecasting a 25 basis point rise. Markets are pricing in a slightly greater than 50% probability of a July hike.

"Given our own views about the outlook for productivity, unit labour costs and the stickiness of services inflation we continue to expect another 25 basis point increase from the RBA, most likely in August," said Adelaide Timbrell, senior economist at ANZ.

"Our forecast is August because that is when the Reserve Bank will have the fresh inflation data from the quarterly CPI report. It is possible that they'll raise earlier in July, and certainly the Reserve Bank has surprised the market before. "

Among major local banks, ANZ, CBA and NAB forecast a July pause while Westpac expects a quarter-point hike. All four saw rates peaking at 4.35% by the end of September. The RBA meets to set interest rates monthly.

The median forecast showed the cash rate at 4.35% at year-end, 25 basis points higher than the peak expected in a poll taken before the June meeting. The highest forecast was 4.85%.

Australia's economy grew 0.2% last quarter, its weakest pace in one and a half years, suggesting 400 basis points of rate increases from the RBA are beginning to restrain the economy.

But a surge in savings during the COVID pandemic and a tight labour market have made the interest rate sensitive housing market more resilient.

Home prices were expected to stagnate on average this year compared to a near double-digit fall predicted three months ago, a separate Reuters poll found.

SEOUL (Reuters) -South Korea will discuss with Japan re-establishment of their bilateral foreign exchange swap line that expired in 2015, its finance minister said on Thursday.

"Current economic issues, including bilateral and regional financial cooperation, will be discussed at the bilateral finance minister meeting on June 29," Minister Choo Kyung-ho said, adding that currency swap arrangement was also on the agenda.

Choo was speaking at a discussion forum, in response to a reporter's question about the bilateral finance minister meeting between Japan and South Korea that is scheduled to be held in Tokyo.

The meeting will mark the revival of regular dialogue between the two countries' finance ministers, which they agreed to bring back to life during their prior meeting in early May and had been suspended since 2016.

On the domestic economy, Choo said this year's economic growth would likely be "slightly lower" than the government's previous projection of 1.6%.

He said the revision would be contained in the government's economic forecast due in late June or early July, when it releases its biannual policy plans.

Meanwhile, the government is not considering a supplementary budget for this year and does not plan to do so for a while, he said.

The country's inflation, which cooled to a 19-month low in May, is likely to fall to the upper 2% level this month, but is still high and controlling it will remain as the top priority for a while, Choo said.

SEOUL (Reuters) - South Korea's finance minister said on Thursday this year's economic growth would likely be lower than the government's previous projection of 1.6%.

The government will "slightly lower" the growth forecast for this year when it releases its biannual policy plans in late June or early July, Finance Minister Choo Kyung-ho said during a media event.

The government is not considering a supplementary budget for this year and does not plan to do so for a while, Choo said.

Choo said the country's inflation, which cooled to a 19-month low in May, was still high and controlling it would remain as the top priority for a while.