UPDATE 1-GKN says hostile bidder Melrose's debt plan could hit pension scheme

(Adds Melrose statement, details)

LONDON, Jan 29 (Reuters) - GKN issued a new salvo against Melrose's hostile bid on Monday by warning that raising the company's debt ratio could reduce the strength of its covenants and therefore increase the cash needed to fund its pension.

The British engineering group, traces its roots back to the 18th century, has been trying to fend off a 7.49 billion pound ($10.54 billion) hostile bid from Melrose.

GKN said the strength of its covenant was critical to its investment strategy and the amount it paid into its schemes, and it said it was assessed at the "high end of good" during its last triennial valuation.

It said Melrose had stated it would increase GKN's leverage to 2.5 times core earnings, materially higher than the leverage level of 0.6 times in mid-2017.

"This may have implications for the covenant strength of the company, the level of the technical provisions deficit and therefore the level of immediate and/or long term cash funding requirements," GKN said.

GKN's pension trustees said this month that any potential buyer of the company should be aware of its billion pound-plus pension deficit.

Melrose told Reuters at the time that it had an "impeccable track record of safeguarding and improving pensioners' rights in every acquisition we have made."

"Today's statement from GKN has no impact on our calculations and contains nothing that should concern GKN pensioners," a Melrose spokeswoman said by email on Monday.

($1 = 0.7109 pounds)

(Reporting by Paul Sandle in London and additional reporting by Noor Zainab Hussain in Bengaluru; editing by Kate Holton and Jason Neely)