UPDATE 2-US DOJ opposes blanket immunity for Continental Air

* DOJ cites concerns over competition, fares

* Continental, UAL say confident of U.S. approval

* Continental shares up, UAL off (Adds comment from united airlines, limited immunity)

By John Crawley

WASHINGTON, June 29 (Reuters) - The U.S. Justice Department opposes blanket antitrust immunity for Continental Airlines Inc CAL.N to join UAL Corp's UAUA.O United Airlines and other carriers in the Star alliance, documents show.

But the companies expressed confidence on Monday the application would be approved, with industry experts saying the bid would now certainly be reworked with conditions to address the concerns of antitrust enforcers.

"I think they'll cooperate well enough. They're not going to tell Justice to take a hike," according to one aviation consultant familiar with Transportation Department thinking on regulatory matters.

In comments delivered to transportation officials late on Friday, the Justice Department raised a number of concerns with Continental's 2008 application to join the Star alliance, including overseas and domestic service.

Antitrust immunity would permit carriers to share pricing, scheduling and other information within the Star Alliance. That group includes US Airways Group Inc (LCC.N), Deutsche Lufthansa AG (LHAG.DE), Air Canada (ACa.TO) (ACb.TO), Air China Ltd (601111.SS), Thai Airways International PCL THAI.BK and several other carriers.

Antitrust chief Christine Varney and her deputies recommended approval of limited immunity, saying the bid as proposed would eliminate competition between United and Continental for transpacific and Latin American service. Varney said full immunity would "substantially lessen" competition between U.S. cities and Bejing where United and Continental provide substantial connecting service.

"A (Transportation Department) grant of immunity for two U.S. carriers to coordinate their international operations outside of an explicit joint venture with foreign carriers would be unprecedented," Varney wrote.

The Justice Department also raised concerns about future competition on routes between the United States and Canada, as well as likely "competitive harm" for consumers in several transatlantic markets, including New York-Stockholm, New York-Lisbon, Dulles-Frankfurt and Chicago Frankfurt.

Antitrust officials also said fares would rise on some routes as a result of the alliance.

Continental declined in a statement to comment on specific aspects of the Justice Department's comments. The carrier said it would address those issues in its own comments to the Transportation Department.

"We remain confident that DOT will approve our application," the company said. "That action is necessary to correct the competitive imbalance that now exists and safeguard our future."

United also said in a statement it was confident the application would clear regulatory hurdles.

Varney has pledged to be more more aggressive than antitrust enforcers under the administration of President George W. Bush. In recent speech, Varney lamented a lack of recent scrutiny of mergers.

Ed Faberman, an aviation attorney with Wiley Rein LLP, said industry consolidation and alliances have left two or three groups of carriers basically controlling long-haul service globally.

"The question becomes what are the relationships going to be with alliances?" Faberman said. "If you approve the UAL/CAL alliance there's not much else out there."

The Transportation Department earlier this year granted provisional approval to the United and Continental application, pending review of public comments.

Continental shares closed up nearly 1 percent at $8.86, while United shares finished off a penny to $3.47. (Reporting by John Crawley and Diane Bartz in Washington and Deepa Seetharaman in New York, editing by Lisa Von Ahn and Andre Grenon)