UPDATE 4-UK's Pru defends Asia bid amid shareholder anger

+ Says Asia bid was worth making, apologises for costs

+ CEO "regrets" strain on relations with shareholders

+ Shareholders split on management future (Adds management shareholder quote, voting results)

By Myles Neligan and Lorraine Turner

LONDON, June 7 (Reuters) - UK insurer Prudential's management sought to soothe investor anger over its botched bid for AIG's Asian unit at a meeting on Monday, unveiling bumper sales and apologising for the misadventure's huge costs.

The company said it would in future concentrate on growth from within but defended having made the $35.5 billion agreed offer for American International Assurance (AIA), sweeping aside calls for directors to resign over what one shareholder said was a "strategic foul-up of momentous proportions."

"We remain convinced we were right to pursue this business opportunity. We feel it was a risk in proportion to the advantage we would have gained," Chairman Harvey McGrath told the several hundred shareholders attending the annual general meeting in London.

Prudential, Britain's largest insurer, was facing many of its investors for the first time since the agreed takeover offer was pulled last week at a cost of around 450 million pounds ($650 million) in fees and penalties after it tried unsuccessfully to renegotiate the price.

"Please believe ... how sorry we are that we incurred costs, only to see the deal fall at the final hurdle," McGrath said, though he dismissed calls for a change of top management.

"We do not believe that the failure to consummate the AIA deal should lead to a shake-up of strategy or leadership."

Chief Executive Tidjane Thiam, a high flyer whose reputation suffered a severe blow as a result of the failed takeover, vowed during almost three hours of questioning from shareholders to restore "strained" ties with investors.

"I know that some of our, my, actions put a considerable strain on relations with shareholders. I very much regret that," he said. "I have two tasks now -- to take advantage of the opportunities ahead of us and (to) start the process of restoring your confidence. I will to do this as long as you wish for me to be your chief executive."

Prudential's share price closed 4 percent lower at 534.50 pence, underperforming a 1 percent drop in the STOXX 600 European insurance sector index, and making it the second-steepest faller in the FTSE 100 share index.

REBUILDING BRIDGES

At Monday's rescheduled annual meeting -- originally intended as the meeting for shareholders to approve the Asian takeover -- many expressed their discontent to loud applause.

"Why did you get it so wrong? You failed to do your jobs properly, every single one of you. You should do the honourable thing," shareholder Anthony Watts told the board.

"It's absolutely appalling -- giving away half a billion pounds doesn't seem to me like good business sense. I can't see how their jobs are tenable," said another investor, Colin Sains.

But investors were divided over whether Thiam, who has faced calls to quit from some of the biggest shareholders including asset manager Schroders, should lose his job.

Euan Stirling, investment director at Standard Life Investments, Prudential's 17th largest shareholder, backed Thiam to stay.

"We look to the future and would it serve our interest best if there were removals of senior executives from the top of the company? I don't think that is the case," he told BBC Radio.

Nevertheless shareholder discontent was reflected in a 32 percent vote against a resolution to renew the board's authorisation to issue new shares in a rights issue, while the directors' remuneration report attracted a dissenting vote of 6 percent.

SALES UP

Earlier the insurer published a 28 percent jump in sales during April and May, ahead of the 26 percent growth reported in the first quarter -- numbers it said demonstrated the business remained on track despite the Asian distraction.

Prudential said its tactic of pursuing capital-efficient growth with a focus on Asia was intact, rejecting suggestions the AIA bid had exposed lack of confidence in its existing strategy.

McGrath also told shareholders there was no decision yet on whether Prudential would buy a stake in AIA if it went ahead with a potential stock market listing in Hong Kong.

In future, he said, Prudential would still consider small-scale takeovers to boost its presence in Asia, even if the days of doing a big deal are over.

"One of the lessons we've learnt is that in the post-crisis world we live in, doing large cross-border acquisitions in financial services is going to be very difficult," McGrath said.

"I think we'll continue to seek to grow this business organically. You should expect us to look at bolt-on acquisitions." ($1-0.6831 pounds) (Additional reporting by Raji Menon; Writing by Clara Ferreira-Marques and Myles Neligan; Editing by Andrew Callus and Greg Mahlich)