PRISTINA, Serbia, Jan 2 (Reuters) - A bomb exploded at the offices of a Serb bank in the south of Serbia's breakaway province of Kosovo late on Tuesday, causing considerable damage but no injuries, police said.

The blast targeted a branch of the Komercijalna Banka in the town of Dragas, an ethnically mixed region in the southern tip of the Albanian majority province.

Kosovo has been run by the United Nations since NATO bombs drove out Serb forces in 1999, but tensions are rising as the 90-percent Albanian majority nears an expected declaration of independence in the first months of 2008.

Kosovo police spokesman Veton Elshani said the blast, which happened at 10.30 p.m. (2130 GMT), was caused by "an explosive device placed near the door of the bank." It was the second time the branch had been targeted since it opened in 2004.

Dragas is mostly populated by a Slavic-speaking Muslim minority seen by Albanians as being close to the Serb minority and Belgrade.

NATO's 16,000-strong Kosovo peace force is braced for possible unrest after Serb-Albanian negotiations ended in deadlock last month. The Albanians say they will declare independence, setting up a showdown with Serbia and its big-power backer Russia.

The United States and most European Union member countries are expected to recognise the new state, after Russia blocked its secession at the U.N. Security Council last year.

Serbia lost control over Kosovo in 1999 after NATO powers intervened to halt the killing and ethnic cleansing of Albanians in a two-year Serb counter-insurgency war. Serbs and other ethnic minorities have since been targeted for revenge. (Reporting by Shaban Buza, writing by Matt Robinson; editing by Keith Weir)

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