UPDATE 1-Lehman debt protection costs drop on KDB hopes

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NEW YORK, Aug 22 (Reuters) - The cost to insure the debt of Lehman Brothers LEH.N fell after state-run Korea Development Bank [KDB.UL] said on Friday the U.S. investment bank was one of its options for acquisitions.

Lehman's credit default swaps tightened 65 basis points to 324 basis points, or $324,000 per year for five years to insure $10 million in debt, according to CMA DataVision.

The swaps closed on Thursday at their highest level since July 15, according to Markit data.

KDB said it was open to mergers or acquisitions of both domestic and foreign companies to beef up its weak areas as the government was aiming to privatize it by 2012. For details, see [ID:nSEO332057]

If an acquisition occurred, Lehman's credit default swaps would likely trade at similar levels as KDB's, which on Thursday were around 153 basis points, according to Markit. (Reporting by Karen Brettell and Anastasija Johnson; Editing by Tom Hals)