UPDATE 1-Elpida warns of $390 mln H1 loss, says to issue CBs

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TOKYO, Oct 14 (Reuters) - Japan's Elpida Memory Inc (6665.T) said on Tuesday it would likely post a 40 billion yen ($390 million) half-year operating loss due to price cuts amid a slowing economy, a much bigger loss than the market is expecting.

Elpida, the world's No. 3 maker of dynamic random access memory (DRAM) chips, also said it plans to raise 50 billion yen through an offering of convertible bonds to a Nomura Holding (8604.T) unit to use the funds for capital investments.

Makers of DRAM chips, which are used in computers, mobile phones and other electronic devices, have seen their profitability battered by sharp price falls amid an overall economic slowdown.

To fight oversupply and sliding prices, Elpida and its Taiwanese production partner Powerchip Semiconductor Corp (5346.TWO) said last month they planned to cut their DRAM output.

Elpida, which trails Samsung Electronics (005930.KS) and Hynix Semiconductor (000660.KS), said it would allocate half of the funds raised by the one-year, zero-coupon bond issue to produce smaller versions of existing chips at its factory in Hiroshima, western Japan.

The other half of the funds will be used on new equipment to make 50-nanometre chips with Powerchip to stay competitive, an Elpida spokesman said.

Using 50-nanometre circuits would allow Elpida to make even tinier chips that would halve the cost of making a semiconductopr compared with the company's existing chips that use 65-nanometre circuits.

The estimated 40 billion yen loss for the six months ended September would be a drop from a 9.9 billion yen profit a year ago and below a 25.3 billion yen loss forecast by three analysts by Reuters Estimates.

Before the announcements, Elpida shares closed up 16.9 percent at 1,383 yen. The Nikkei average .N225 ended up 14.2 percent. (Reporting by Sachi Izumi; editing by Sophie Hardach)