* MSCI EM stocks drop 3.7%, FX up 0.03%

* KOSPI heading for biggest monthly drop since 1997

* S&P flags Indonesia policy uncertainty after cenbank

governor resignation

By Utkarsh Hathi

July 28 (Reuters) - Emerging market stocks slid to a more

than three-month low on Tuesday as a rout in Asian chipmakers

revived concerns over valuations of AI-related stocks, while

currencies were mixed against a steady dollar.

Asian semiconductor stocks tumbled as a threat of increasing

competition from Chinese chipmakers and uncertainty on returns

from lofty AI capex spending rattled investors.

MSCI's emerging markets equities index fell 3.7%

to its lowest level since April, with losses concentrated in

Asia.

South Korea's KOSPI tumbled 10.8%, heading for its

steepest monthly drop since the Asian financial crisis in 1997,

while Taiwan's tech-heavy benchmark fell 4.7% and

Chinese equities slid 2.8%. The selloff comes ahead of

earnings from tech giants in the U.S. such as Apple ( AAPL ),

Microsoft ( MSFT ), Meta Platforms ( META ), and Amazon ( AMZN )

later this week.

"The trend right now is going to be rather a further

readjustment of the valuations rather than a quick rebound,"

said Ipek Ozkardeskaya, senior analyst at Swissquote.

"What's new is that their free cash flow levels are drying

up faster than investors thought and we saw that last week with

Alphabet".

Conversely, equities in emerging Europe gained, with Polish

, Hungarian, and Romanian benchmarks up

between 0.6% and 0.7%.

The MSCI gauge for emerging market currencies

was muted against the U.S. dollar.

Investors are also looking at the U.S. Federal Reserve's

policy meeting starting later in the day, with greater emphasis

on signs of any hawkishness in the communication on Wednesday as

the U.S.-Iran conflict hangs in the balance.

Oil prices extended declines after President Donald Trump

said on Monday that Washington was having "good talks" with

Tehran.

Most Asian currencies were subdued against the U.S. dollar,

with the Indonesian rupiah slipping 0.3%, after a similar

sized move in the previous session, following the surprise

resignation of the Southeast Asian nation's central bank

governor.

Rating agency S&P said the resignation may contribute to

greater uncertainty about Indonesia's monetary policy, while

affirming its credit rating to 'BBB/A-2'.

Elsewhere, S&P also affirmed Sri Lanka's FX rating at

"CCC+/C" with a "stable" outlook on Monday.

In emerging Europe, currencies traded lower against the

euro, with the Hungarian forint slipping the most,

down 0.7%. The currency has been the region's best performer

this year.

South Africa's rand and the Turkish lira

were muted.

HIGHLIGHTS:

** China starts production of home-grown immersion DUV

chipmaking tools - source

** IMF completes final review of Ghana lending program, unlocks

$371 million

** South African leading business cycle indicator down 0.3% in

May

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