Asian stocks drop, bomb plot news hits pound

SINGAPORE, Aug 10 (Reuters) Asian stock markets edged lower on Thursday, with Seoul leading the way after the Bank of Korea raised interest rates, while the euro hit a record high against the yen on expectations of higher European rates.

Oil prices rose but gold was trapped in a range after briefly trading above 1 an ounce on short-covering.

European shares were expected to fall after Wall Street tumbled and after British police said they had foiled a plot to blow up aircraft in mid-flight.

The pound fell against the dollar and the euro after Britain raised its security threat level to ''critical'', which means it expects an attack imminently.

Spread betters in London called the FTSE 100, CAC 40, and DAX indexes between 40 and 76 points down.

Tokyo's Nikkei average finished down 0.16 percent as continued concerns about a slowdown in the key U.S. market prompted investors to take profits in recent winners such as industrial robot maker Fanuc Ltd.

But underlying confidence in the domestic economy -- in part due to Wednesday's release of stronger-than-expected machinery orders data for June -- helped boost shares of banks such as Mizuho Financial Group Inc.

''As a whole, the market has difficulty in pushing itself higher from the current levels,'' said Kentaro Nakajo, chief manager in the retail equity division of Mitsubishi UFJ Securities.

''That's because people want to know if the U.S. is experiencing only a slowdown, not a recession. Until that is clear, the market here will likely be capped at around 15,700 (for the Nikkei),'' he said.

South Korea raised its key interest rate by a quarter of a percentage point to 4.5 percent -- a five-year high -- surprising some and pushing the KOSPI down by nearly 1 percent.

''This comes as a surprise as inflationary pressure has eased and the economy is slower. The Bank of Korea probably wanted to act pre-emptively,'' said Park Sang-hyun, chief economist at CJ Investment&Securities.

Hong Kong stocks fell 0.17 percent, but China plays crossed the 7,000 mark for the first time in 11 weeks as investors shifted to stocks like China Life Insurance, while blue chips consolidated following the previous day's rally.

Australia's benchmark S&P/ASX 200 index was down 0.18 percent.

POUND HIT BY BOMB PLOT The euro steadied after hitting a record high against the yen and inched towards a two-month peak against the dollar as investors favoured currencies where interest rates are expected to keep rising.

The pound spiked down to session lows against the dollar and the euro after British police said they had thwarted a plot to blow up aircraft in mid-flight, arresting a number of people in the London area.

The euro was at 148.30 yen after climbing as high as 148.60 yen, its strongest since the single European currency was launched in January 1999.

Among major currencies, the yen is the least attractive destination for foreign investors due to low overnight interest rates offered in Japan.

That is likely to be reinforced if the Bank of Japan holds rates at 0.25 percent, as widely expected, at the end of a two-day policy meeting on Friday.

''The euro could have another interest rate hike in the near future and the yen is going to take time to do anything, so it seems safer to sell yen crosses,'' said the chief trader at a European investment bank in Tokyo.

The dollar slipped to 115.15 yen from 115.35 yen.

Spot gold was stuck in a range. It hit a high of 1.40, just below a one-week high of 4.55 hit on Wednesday, before dropping to 0.75/651.50 by 0516 GMT.

U.S. crude oil futures gained 15 cents to touch .50 per barrel due to supply concerns amid drops in U.S. oil inventories and a loss of Alaskan crude production.

Crude surged at one point on Wednesday above after U.S.

government weekly oil statistics showed a larger drawdown in crude and gasoline stocks than analysts had expected.

REUTERS SKU RK1230