AIRSHOW-UPDATE 1-Arms race dominates Dubai air show

* Gulf region leads global race for new fighter jets

* U.S. to showcase F-22 fighter plane

* Ethiopian Airlines to confirm $2.9 bln Airbus order * Air Austral ushers in airliner travel with over 800 seats

(Adds expected Air Austral order, details)

By John Irish and Tamara Walid

DUBAI, Nov 15 (Reuters) - Middle East tension is driving demand for military hardware at the Dubai Air Show which opened on Sunday, but recession means fewer orders for civilian jets.

Airbus (EAD.PA: 行情) looked set to bag $3.5 billion in airliner orders early in the show -- including the first for an 840-seat version of its A380 superjumbo, the world's biggest passenger plane.

But it was the Gulf region's role as the world's busiest arms market that dominated day one of the largest Middle Eastern showcase for aviation.

Among a raft of dignitaries and businessmen, United Arab Emirates Prime Minister Sheikh Mohammed bin Rashid al-Maktoum, who is also ruler of Dubai, toured the Boeing (BA.N: 行情) Apache AH-64D attack helicopter, whose presence on the tarmac among combat jets highlighted the military stakes in the region.

"With more threats and continued tensions, you will have continued demand for new systems and new capabilities, and that is why we have seen ongoing interest in upgrading and renewing fighter fleets," Riad Kahwaji, chief executive of the Institute for Near East and Gulf Military Analysis, told Reuters.

"So long as tension is there, and the situation with Iran is not solved, and there is the threat of terrorism and so forth, I think there will be an ongoing arms race," he added.

The UAE is in talks with France's Dassault Aviation (AVMD.PA: 行情) to buy Rafale combat jets which will be on display at the Nov. 15-18 air show. But analysts say the United States has not given up on grabbing a deal.

RAPTOR ON SHOW

Others reported to be looking to renew fighter fleets include Kuwait and Oman, while sources told Reuters in July that Saudi Arabia was looking to expand a recent purchase of Eurofighter Typhoons and was talking to Boeing about F-15s.

In a surprise decision, the United States was preparing to display the world's most advanced fighter, the Lockheed Martin (LMT.N: 行情) F-22 Raptor, months after axing a display at the world's largest air show in Paris.

The jet is not on sale abroad but its only other major foreign appearance in Britain last year created a buzz and was seen as a possibly deliberate reminder, for buyers of other U.S. hardware and potential enemies alike, of its military reach.

"It is marketing for U.S. equipment, maybe reminding the UAE that there are alternatives to Rafale, but they are also flexing their muscles near Iran," a European defence executive said

The biennial air show is taking place a few miles from the mouth of the Gulf and the border with Iran, which remains locked in a dispute with the West over its nuclear programme.