The U.S. Secret Service, working with police in several Asian countries, has broken up an international counterfeiting ring that produced the highest quality fake $100 bills ever seized by federal authorities, according to Secret Service Director John Simpson.

Counterfeit bills are generally spotted by merchants or bank employes, who notify police. "But these bills were of such quality that they were not picked up until they reached the Federal Reserve Bank," Secret Service spokesman Jane Vezeris said yesterday.

The 18-month investigation, which included the Royal Hong Kong Police, the Singapore police, the Royal Thai Police and authorities in Malaysia, was begun after the fake bills were found in circulation all over the world, particularly on the West Coast and in Asia.

The Secret Service said the counterfeit operation was run by Ah Sin Lee, 36. During a search of Lee's residence in Bangkok, Royal Thai police seized equipment used in producing the counterfeit $100 bills and an engraved plate that was to be used for making a $50 note.

In addition to the U.S. notes, the Secret Service said Lee was printing counterfeit Malaysian and United Arab Emirates currencies, and VISA traveler's checks. He is believed to have distributed at least $100,000 in traveler's checks.

Lee, who is in custody in Thailand, has admitted producing more than $2.5 million in counterfeit dollars, according to the Secret Service, but authorities say they don't know how high the figure may be or how much of the fake money remains in circulation.

The Secret Service said Lee claimed to have studied counterfeiting under Tim Cheung Wong, a master counterfeiter from Hong Kong who died several years ago. Lee is believed to have improved on Wong's methods.

Vezeris said that most counterfeiters use an offset printing method, which involves a photographic process, while Lee used an intaglio typographic printing press and engraved plates in a process similar to that used by U.S. government printers.

Secret Service officials said Lee started his counterfeiting operations in 1979, but he is not believed to have begun producing the high-quality notes until 1982.

Because the operation was considered so sophisticated, last November the Secret Service set up a special task force of senior agents led by Peter A. Cavicchia, who heads the agency's Counterfeit Division, to oversee the investigation.

Vezeris said that Lee, who is of Chinese-Malaysian descent, originally based his printing business in Malaysia, but shut down the operation and went underground after some assistants were arrested.

Arrested with Lee, who was finally tracked to Thailand, were his brother, nephew and another man. If convicted, each could receive a 25-year prison sentence.