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S.Korea to set fighter jet auction terms late Nov -sources

* Lockheed's F-35 has the upper hand in the auction

* New auction comes after earlier bid by Boeing voted down

* Boeing, Eurofighter hope S.Korea will pursue mixed purchase

By Joyce Lee

SEOUL, Nov 11 (Reuters) - South Korea will set the terms of a multi-billion dollar fighter jet auction in late November - an auction likely to favour Lockheed Martin Corp but which will also be watched by rivals to see if they will get a share of the pie.

Sources familiar with the matter also said the air force requested enhanced stealth capability on Monday.

The move was expected after the government in September bowed to public opinion and voted down a bid by Boeing to supply 60 warplanes, saying it would restart the the 8.3 trillion won ($7.8 billion) tender process to get a more advanced, radar-evading jet.

At the time, Boeing's bid was the only one that had come within budget and even if it now favours Lockheed's F-35 programme, Seoul is also considering options such as initially buying fewer jets or splitting the purchase between different jets to keep costs down.

"There is talk of splitting the 60 plane purchase into one lot of 40 and one lot of 20, but it will all be sorted before the (Joint Chiefs) meeting," said a separate source belonging to the Joint Chiefs of staff.

That source and another separate source said the air force's request will be scrutinised and likely modified by the Joint Chiefs of Staff, defense ministry and the presidential office before being approved at a Joint Chiefs meeting tentatively set for Nov. 27.

Although the defense ministry is in talks with the finance ministry to increase the budget for the jet purchase, the likelihood of that is slim as South Korea wrestles with a tax shortfall of up to 8 trillion won this year while trying to expand social welfare spending.

Boeing spokesman Conrad Chun said a mixed purchase was the best option for the South Korean government.

"We know that cost, capability and safety are important to the ROKAF (Korea's air force)... and believe that the best option is a mixed buy that includes Advanced F-15s that have a guaranteed price and capability," he said in a statement emailed to Reuters.

The Eurofighter consortium is also hoping for a mixed purchase.

"We are prepared to offer a programme flexible enough to accomodate (a split) scenario," said Christian Scherer, EADS Cassidian's chief sales officer and head of international operations.

One U.S. government official said South Korea had asked for and been granted an extension in the terms of the proposed F-35 offer through the end of December.

The official, who was not authorized to speak publicly, said Washington was awaiting details in coming weeks on how Seoul planned to proceed with the fighter competition.

Lockheed officials were not immediately available for comment.