Turkey probes coup plot, ruling party in court

* Seized documents show group planned gradual coup - papers

* Some suspects brought to court

* AK Party defends against anti-secular charges in court

* Turkish assets fall as investors unnerved

By Hidir Goktas and Selcuk Gokoluk

ANKARA, July 3 (Reuters) - Documents seized by Turkish police indicate that a shadowy, ultra-nationalist illegal organisation planned to trigger a coup to unseat the government, newspapers reported on Thursday.

The reports come as the governing AK Party defended itself in court against charges of trying to establish an Islamic state. The party could be closed down, a move that might lead to an early parliamentary election.

Turkish financial markets recovered some of their losses, but the events concerned investors, who fear prolonged political tensions in the European Union-applicant country.

Turkey has had four military coups in the last 50 years.

Turkish media said a secret plan, including launching illegal protests on July 7 across 40 provinces and clashes with security forces, had been seized during a police swoop on suspected members of the so-called Ergenekon organisation.

Twenty-one people, including two retired senior generals, journalists and politicians, were detained on Tuesday for links to the group suspected of trying to engineer a military takeover. All were critics of the government.

Two of the detainees were brought before an Istanbul court on Thursday. Police declined to comment on the case.

"As a result of the recent detentions, tension between Turkey's secular establishment and the AKP is reaching the boiling point," said Wolfango Piccoli, an analyst at political risk consultancy Eurasia Group.

"Regardless of which camp will prevail at the end, the price is likely to be high for Turkey's social and political stability," Piccoli said in a research note.

The fresh detentions revived a debate in Turkey over whether the allegations of a coup against the AK Party held water or were used to suppress government opponents, newspapers said.

"We in the AK Party will continue to make the maximum efforts to prevent this sensitive process from being transformed in any way into a political wrangle," AK Party deputy chairman Dengir Mir Mehmet Firat told a news conference.


Opposition parties criticised the handling of the case.

"Distinguished people from various segments of society, known to oppose the government, have been detained one after the other," said Turkey's main opposition leader Deniz Baykal.

"There is a suspicion in society that it is turning out to be a political revenge process rather than a legal process."

Yeni Safak, a religious-leaning daily, said the seized documents also showed plans to kill members of the judiciary.

An indictment has already been brought against 48 people, including retired army officers, lawyers and politicians, arrested over the past year as part of the Ergenekon probe.

"Ergenekon may be a criminal organisation, and so should be prosecuted, but with its sloppy organisation and old men in charge it remains highly doubtful this was anything very serious," said Gareth Jenkins, an Istanbul-based expert on Turkish security issues.

Political analysts say the likelihood of the AK Party being closed down has increased since the Constitutional Court last month overturned a government-led move to allow students to wear the Islamic headscarf at university.

The chief prosecutor of the Court of Appeals also wants 71 leading political figures, including Prime Minister Tayyip Erdogan, banned from party membership for five years.

"We will try to finish (our oral defence) today," AK Party deputy group chairman Bekir Bozdag told reporters.

The AK Party has called for the Constitutional Court to dismiss the case. A ruling is most likely expected in August.

The EU has criticised the closure case, saying such political issues should be debated in parliament and decided through the ballot box, not in the courts.

Turkey has long been divided along ideological and religious lines, stemming back to the foundation of modern Turkey on the ashes of the Ottoman Empire in 1923. The republic's founder Mustafa Kemal Ataturk removed religion from public life and redirected Turkey towards the West.

The secularist elite, including generals, judges and professors, see it as their duty to defend secularism and now accuse the AK Party of seeking to relax the strict separation of state and religion.

The AK Party, a pro-business, reform-driven party with roots in political Islam, denies the charges and points to its record in office as proof.