"There is deep concern in our country that a transfer of weapons would be a transfer of technology to China which would change the balance of relations in between China and Taiwan," Bush said.

Talks on the issue in Brussels with European leaders had been "constructive and open," he said, but signalled Washington might take punitive steps against the EU if it ends the ban.

Although he said he was open to EU efforts to draw up a plan to make lifting the 15-year-old embargo more palatable to Washington, he added sceptically: "Whether they can or not, we'll see."

The European Union imposed a ban on exports of military hardware to China in 1989, to protest a brutal crackdown on weeks of pro-democracy protests against the Communist leadership.

There was international outrage as tanks moved in on the vast Tiananmen Square in the heart of the Beijing to quell the protests, leaving hundreds dead, possibly up to 1,000, dead.

But now the EU wants to lift the embargo with an eye firmly on the booming Chinese economy, as China continues its moves to open up to the West, which have already seen it win a seat on the World Trade Organisation.

In December, at an EU-China summit in The Hague, Chinese Prime Minister Wen Jiabao urged the scrapping of the embargo, calling it a relic of the Cold War and saying it was inconsistent with the state of EU-China relations.

EU leaders have indicated that the arms embargo is likely to be lifted under the bloc's current Luxembourg president, which ends in June.

But the United States says this will give China access to hi-tech military know-how and firepower that would threaten Taiwan, seen by Beijing as a renegade province, and shift the strategic balance in East Asia.

A US Congress resolution passed earlier this month warned that lifting the ban would "place European security policy in direct conflict with United States security interests and with the security interests of United States friends and allies in the Asia and Pacific region."

It warned of "limitations and constraints" on government and industrial relations between the United States and Europe if the ban is lifted.

French President Jacques Chirac -- whose nation boasts a large defence industry -- repeated a call to lift the arms ban, but added the conditions for doing so should be worked out between the EU and the United States.

Chirac said the ban "is no longer justified" but that it should be lifted "under conditions that Europe and the United States define together".

Luxembourg Prime Minister Jean-Claude Juncker, whose country holds the rotating EU presidency, told journalists: "This is a question which is being examined. We still haven't reached a final result."

One possible compromise would be to strength the EU's voluntary code of conduct for arms exports, aimed at keeping weapons out of the hands of repressive regimes or international aggressors.

So far much of China's efforts to modernise its military -- one of the largest in the world with up to 1.5 million soldiers -- has relied on Russian technology.

But German Chancellor Gerhard Schroeder reiterated his confidence that the EU would lift the embargo despite US opposition, saying he hoped the US Congress could be swayed.

"We believe it is justified to trust in the new (Chinese) leadership and give them this possibility," he told reporters.

Bush said that any EU agreement to end the ban would have to be politically acceptable to the US Congress.

Earlier a spokesman for British Prime Minister Tony Blair said Britain and other EU members were striving to allay the US jitters.

"On China, we recognise that the United States has concerns, and along with our European partners we are working to address those concerns," he said.

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