UPDATE 2-After Air France-KLM share grab, Dutch pledge coordination with French

The French and Dutch governments will issue joint strategy recommendations for Air France-KLM , their finance ministers said on Friday, as they sought to defuse a row over a surprise purchase of a stake in the airline group by the Dutch. Officials from both countries will convene a working group on Air France-KLM and put forward proposals by the end of June, French Finance Minister Bruno Le Maire said after a meeting with his Dutch counterpart Wopke Hoekstra in Paris.

The Dutch government quietly amassed a 14 percent stake in the company in a move announced late on Feb. 26, triggering an immediate diplomatic spat with France, Air France-KLM's biggest shareholder with a 14.3 percent holding. Shares in the group, which had plunged almost 15 percent by Thursday night, recovered a little after the ministerial talks on Friday and were up 5.4 percent at 1040 GMT in Paris.

"I'm aware our stake acquisition is not very orthodox, but it is based on good intentions," Hoekstra told reporters after the talks with Le Maire. Both ministers affirmed their support for Air France-KLM's new chief executive, Canadian Ben Smith. "We want to build a better company, and we want to make sure the interests of both countries are taken into account," Hoekstra said.

An Air France-KLM spokesman declined to comment. POLITICAL IMPACT

Dutch ministers ordered the stealth acquisition after Smith appeared unreceptive to their concerns about his plan for closer integration between the Air France and KLM operations, and its potential impact on Amsterdam's Schiphol airport. The move has been applauded across the Dutch political spectrum as campaigning gets under way for elections in which the four parties of Prime Minister Mark Rutte's coalition are likely to lose their Senate majority.

Since their 2004 merger, the two airline brands have maintained separate corporate structures and boards, and a high degree of management autonomy jealously guarded by KLM. Smith appeared last month to have resolved a standoff with KLM boss Pieter Elbers, announcing that decisions on networks, fleets and commercial strategy would be taken at group level to improve competitiveness against better-integrated rivals such as IAG, parent of British Airways and Iberia.

Parts of Smith's programme may now face fresh challenges, with a second hefty government shareholder in the boardroom. Together the two states are expected to command closer to 30 percent of voting rights. In a joint statement, Le Maire and Hoekstra said their working group would address the governments' "views on long-term strategy" for the group, while "defending the interests" of its airport hubs at Paris Charles de Gaulle and Schiphol.

Jointly chaired by senior treasury officials, the panel will also review the two state's shareholdings in Air France-KLM and the makeup of its board, they said. Le Maire, who had condemned the Dutch stake purchase as "incomprehensible" and "unfriendly", played down the dispute on Friday - even as ripples of indignation continued to be felt in Paris.

"What was unfriendly about this was the lack of warning, and the politicization of a company was inappropriate," European Affairs Minister Nathalie Loiseau told CNews television as Le Maire and Hoekstra were about to meet. "It may please Dutch voters, but you can't take business decisions for electoral reasons." (Reporting by Laurence Frost; Additional reporting by Toby Sterling in Amsterdam, Dominique Vidalon and Simon Carraud in Paris Editing by Luke Baker/Keith Weir)