CHICAGO, Aug 2 (Reuters) - U.S. agricultural conglomerate Cargill Inc. is investigating how beef containing banned parts was shipped to South Korea, which was prompted on Thursday to effectively block all U.S. beef imports.

"Cargill understands that a 37.6-pound (17 kg) box in a shipment of 41,128 pounds of beef labeled beef chuck eye roll contained one piece of bone-in short loin. The product was packaged at Cargill's beef plant in Friona, Texas," Cargill spokesman Mark Klein said in an e-mail.

South Korea currently accepts only boneless U.S. beef as protection against mad cow disease, but had been considering allowing imports of bone-in beef.

In addition to its own investigation, Cargill is working with the U.S. Department of Agriculture (USDA) and South Korea as they conduct their own investigations, said Klein.

Pictures on the Internet show a South Korean inspector holding a large section of vertebra with some partial rib bones attached.

The vertebra in the Internet pictures was removed from the short loin, said Klein.

"That is why it appeared the way it did. The short loin was shipped with the bone in and would be what T-bone steaks come from," he said. "We hope to resolve this matter quickly so that quarantine inspections can resume."

The inspections, which have been halted, are required before imported beef can be sold in South Korea.

Previously, South Korea has rejected some U.S. beef for allegedly containing bone fragments, which led it to suspending imports from certain beef plants.

U.S. cattle prices traded lower at the Chicago Mercantile Exchange on Wednesday and Thursday partly in reaction to rumors, and later confirmation, that shipments were halted.

"I would expect it to be temporary," Andrew Gottschalk, analyst at HedgersEdge.com., said of South Korea's action. "No one does this on purpose. It could be something as simple as a bar code misread,"

Mad cow disease, formally known as bovine spongiform encephalopathy (BSE), is a fatal brain disease in cattle, and scientists believe humans can get a similar disease by eating certain parts from infected cattle.

The United States reported its first case of mad cow disease in December 2003, prompting South Korea and many other countries to ban U.S. beef.

Only recently have those countries lifted those bans, but have restricted purchases to boneless beef or from cattle of certain ages.

Before the U.S. mad cow case, South Korea was the third largest export market for U.S. beef.

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