UPDATE 4-Dogan shares fall 19 pct as tax fine row continues

* Turkey media group's shares end session down 19 pct

* Tax authority open to settlement talks, say gov't sources

* Row over media freedom puts government back in spotlight

(Recasts, updates closing share prices, adds details)

By Orhan Coskun and Paul de Bendern

ANKARA/ISTANBUL, Sept 9 (Reuters) - Investors exited Turkey's top media group for a second straight day after it was hit with a record fine for unpaid taxes and as a standoff with the government over press freedoms showed no signs of easing.

Shares in Dogan Yayin (DYHOL.IS) fell 19 percent on Wednesday in heavy trade, having shed 20 percent during the previous trading session on news of the $2.53 billion fine by the finance ministry's tax authority. [ID:nL8153526]

It is the second major fine this year for Dogan Yayin, which controls more than half of the non-state media market and has been at odds with Prime Minister Tayyip Erdogan over its coverage of the Islamist-rooted government.

Dogan shares briefly rebounded on optimism over a possible solution to the tax row after government sources, who declined to be named, told Reuters the tax authority was open to negotiating the fine.

"The way for a settlement is open for the company on this dossier. For that reason, it is possible that the settlement option can be tried," one of the government source said. A tax authority official said Dogan had already applied to negotiate a settlement, which was a standard procedure.

The fine, which Dogan said it would appeal, roughly equals the $2.7 billion combined market value of the firm and its parent company, Dogan Holding (DOHOL.IS), raising concerns about the impact on the group's finances.

Dogan has claimed it faces unprecedented tax penalties because of the critical coverage of the government by its newspapers and television stations last year, particularly over corruption allegations.

"This is a legal process ... It wouldn't be correct for me to make an interpretation," Foreign Minister Ahmet Davutoglu said in the first official government reaction to the fine. He said that the government's goal was to establish press freedom.

Turkey's main opposition Republican People's Party (CHP) accused the government of using the tax authority to punish a media group often critical of the ruling AK Party.

"Billions of dollars in fines cannot be explained with any tax law. It is very clear that this is aimed at intimidating (Dogan)," CHP leader Deniz Baykal told a news conference.

CONCERNS OVER FINANCES

The Finance Ministry fine on firms controlled by Dogan Yayin was twice the level of the 1.88 billion lira tax arrears assessed on the company after examining accounts from 2005 to 2007, Dogan Yayin said in a statement on Tuesday.

Government sources said the fines were justified, given the size of the taxes investigators found Dogan had not paid.

Dogan Yayin owns top-selling daily Hurriyet (HURGZ.IS) and co-owns with Time Warner (TWX.N) broadcaster CNN Turk.

Shares in Dogan Holding, the energy-to-media conglomerate controlled by billionaire Aydin Dogan, came off earlier lows to close down 1.85 percent after earlier losing 8 percent, while Istanbul's main share index closed down 0.60 percent.

A government source told Reuters that Dogan Yayin would need to raise collateral during the appeal process, something the company found difficult when it appealed a separate $500 million fine in February.

It was unclear how much collateral Dogan must raise now.

"To come up with the money Dogan Yayin would either have to make asset sales or will need to raise a significant amount of capital and request money from the (Dogan) holding," said Tuncay Tursucu, head of research at Meksa Securities.

Dogan Yayin said on Tuesday the group was fined for the transfer of shares between Dogan companies, which it said the law allowed it to do without paying taxes.

Turkish tax law has long been subject to controversy, with complaints about unclear definitions in the tax code. (Additional reporting by Selcuk Gokoluk and Ayla Jean Yackley; writing by Paul de Bendern; editing by David Cowell, Will Waterman and Karen Foster)