UPDATE 2-Russia's $29 bln asset sale plan cheers investors

+ Analysts upbeat on plan to sell stakes in major firms

+ Sales would plug budget holes before 2012 election

+ Plan could boost Medvedev's investment drive

+ Concerns over transparency of the possible sales (Recasts, adds reaction, context)

By John Bowker and Lidia Kelly

MOSCOW, July 26 (Reuters) - Russia's plan to sell $29 billion in state assets puts meat on the Kremlin's drive to lure investment and slash the budget deficit but much will depend on how the sales are implemented, investors said on Monday.

If approved by Prime Minister Vladimir Putin, Russia's most ambitious asset sale plan since the rigged privatisations of the 1990s could help President Dmitry Medvedev plug a hole in the budget ahead of the 2012 presidential election.

Finance ministry sources told Reuters on Saturday that minority stakes in ten firms — including Russia's biggest oil producer Rosneft, lender VTB and oil pipeline monopoly Transneft — would be sold off.

"The whole point about privatisation programmes is that they never happen so what is important here is whether anything happens at all — something or nothing," said Christopher Granville, a Russia analyst at London-based emerging market investment research firm Trusted Sources.

"This initiative by the Finance Ministry suggests that at least something will happen," he said.

Ministry sources said on Saturday the asset sale idea had been discussed and judged realistic at a preliminary meeting chaired by Putin, Russia's most powerful politician.

A Finance Ministry spokesman on Monday confirmed a shortlist of companies had been drawn up but gave no figures and said no final decision had yet been made on the sales. It was also unclear whether the sales would involve foreign investors, be through open stock market tenders or targetted deals.

The plans have also been devised to ensure that the state will keep control over major companies, a step that could ensure support from many of the powerful clans within the Kremlin who are eager for state control of assets deemed strategic.

For a factbox on the proposed asset sales, please click on Moscow's MICEX index jumped over 1 percent on Monday. Transneft shares rose 5.9 percent and Rosneft by 2.8 percent.

SALE OF THE CENTURY?

Investors said the asset sale plan offered the government an attractive alternative to higher taxation in its battle to reduce budget deficits ahead of the 2012 presidential election.

Russia wants to cut its budget deficit to 4 percent of GDP in 2011 and 2.9 percent in 2012 from around 5 percent — or $80 billion — this year. Russian officials say they want to balance the budget by 2015.

Moscow has huge reserves built up over years of high oil prices and can afford to cover the deficit. But the finance ministry is using the debate over the shortfall to seek to advance market and fiscal reforms while times are good.

"Russia is dealing with a budget deficit this year and next year. The privatisation plan is one way of dealing with the budget deficit," said Kevin Dougherty, a Moscow-based fund manager at Pharos Asset Management.

"This is a genuine attempt to broaden the investor profile in Russia," he said.

Medvedev, Putin's handpicked successor, says he wants more foreign investment to upgrade the country's ageing Soviet infrastructure and fuel growth after the crisis hammered Russia's energy-dependent economy.

But in a country where privatisation remains a dirty word for most of the population after the rigged asset sales of the 1990s, Russia may have an uphill battle to ensure the sales achieve the intended results.

In Russia's first wave of chaotic privatisations in the 1990s under President Boris Yeltsin some of the world's biggest natural resource companies were sold off on the cheap to a tiny group of businessmen, known in Russia as the oligarchs.

Supporters say those privatisations helped Russia's transition after the collapse of the Soviet Union, though opponents say the murky sales undermined stability by discrediting the very idea of a market economy.

"To sell stakes through transparent and open auctions is the most logical way," said Anton Struchenevsky, senior economist at Troika Dialog.

"The key for investors will be what they get with those stakes, will they get a seat on the board of directors? Will they be involved in the sale process?"