Loki was born somewhere near the time of Asgard's war with the Frost Giants, which occurred in 984 CE. Odin found him abandoned in a temple in Jotunheim, and realized he was the son of the Frost Giant king, Laufey. He took Loki back to Asgard and raised him as his own son, believing (at least at the time) that the child might one day be useful in building a lasting peace between Asgard and Jotunheim.
Loki always felt that he was growing up in the shadow of his brother, Thor. This became a resentment so great that he was willing to allow Frost Giants into the Asgardian weapons vault (causing the deaths of several guards) to ruin his brother's coronation. He appears to be driven by a burning desire to prove that he is better than Thor.
As a Frost Giant, Loki has superhuman strength and stamina, which are comparable to those of Asgardians, allowing him to lift thousands of pounds, endure gunfire without injury, and survive hits from energy weapons and blows from superhumanly strong beings like the Hulk without lasting harm. In addition, he can easily tolerate extremes of cold that would cause frostbite to Asgardians.
Loki is a skilled hand-to-hand combatant, preferring knives and staves as close combat weapons. He is an expert knife thrower.
Loki is also adept at Asgardian "magic", particularly the creation of illusions. He can change the appearance of himself or others, project images of himself, and move invisibly for at least short periods of time. His illusions have at least some physical aspect, allowing them to be touched without immediately giving away their nature. Loki has also demonstrated some telekinetic ability, but its limits are not known.
Weapons and Equipment
If expecting trouble, Loki wears light body armor of Asgardian manufacture. He typically has an unspecified number of daggers and throwing knives concealed about his body. He has been seen to conjure throwing knives from thin air, but it's not clear if he is somehow creating them by "magic" or covering the draw with an illusion.
At times, Loki has wielded Odin's spear, Gungnir, which is capable of generating powerful blasts of energy. During an invasion of Earth, he wielded a staff of alien origin -- provided by the ruler of the Chitauri -- that could fire energy bolts and take control of human minds by contact with the target's "heart" (touching it to the victim's chest over the heart).