UPDATE 1-Popular says U.S. Treasury to exchange preferred stock

* U.S. Treasury to exchange $935 mln of preferred stock

* Says to terminate consent solicitation

Aug 10 (Reuters) - Popular Inc (BPOP.O), the parent of Banco Popular, said the U.S. Treasury Department has agreed to exchange $935 million of its series C preferred stock for newly issued trust preferred securities, in efforts to strengthen the bank's regulatory capital.

Trust preferreds sit below senior debt but above common equity in a company's capital structure.

Popular expects to complete the exchange following completion of a separate exchange offer of up to 390 million of common shares for series A and B preferred stock and trust preferred securities.

The new trust preferred securities issued to Treasury will have a distribution rate of 5 percent until Dec. 5, 2013 and 9 percent thereafter, the company said in a statement.

Popular said it will also terminate its consent solicitation of holders of series A and series B preferred stock and will not extend the expiration date for the exchange offer it started in June, given the agreement with the Treasury.

Popular shares were down 2 percent at $1.33 in morning trade on Nasdaq. (Reporting by Sweta Singh in Bangalore; Editing by Ratul Ray Chaudhuri)