UPDATE 4-Suzuki files for arbitration in VW dispute

* Analysts see no financial impact on Suzuki

* Suzuki says VW withheld promised hybrid technology

* VW confident and not "unduly concerned" by move

* VW sees no legal basis forcing it to sell stake (Adds details on procedure)

By Chikafumi Hodo and Christiaan Hetzner

TOKYO/FRANKFURT, Nov 24 (Reuters) - Suzuki has filed for international arbitration in a bitter dispute with Volkswagen after the German automaker refused to sell back its 20 percent stake in the Japanese ally-cum-competitor.

Suzuki, a specialist in building small cars profitably for emerging markets, said on Thursday it chose to initiate a procedure in London with the International Chamber of Commerce (ICC's) International Court of Arbitration.

Accusing its German partner of withholding hybrid powertrain technology it promised to share, Suzuki on Nov. 18 declared its two-year alliance with the German company over and demanded a return of the 19.9 percent stake VW bought for about 1.7 billion euros ($2.26 billion) in January 2009.

"Suzuki filed for divorce last week -- they terminated the marriage license. Now it's about who gets custody of the kids," said a person close to the proceedings.

Chief Executive Osamu Suzuki plans to argue before the tribunal that he only sold the company's treasury stake to Volkswagen on certain conditions set forth in the partnership's framework agreement that were never met.

Volkswagen rebutted on Thursday, seeing "no legal basis whatsoever obliging us to surrender our shares", closing the door on any slim last chance to revive the alliance by acquiescing to a key demand of Suzuki to show good faith.

A spokesman summed up: "We feel confident and are not unduly concerned about the proceedings."

Volkswagen now has 30 days to propose its request on conditions for arbitration as the two parties first must agree on the conditions of the procedure, including a neutral jurisdiction -- most likely English law.

It also has to decide on whether to appoint to the tribunal either one, or -- as Suzuki has requested -- three arbiters, who are legal experts but don't often sit on any bench as a court justice.

Despite the embarrassment of a key strategic partner like Suzuki filing for divorce, analysts said Volkswagen's long-term plans to penetrate India and Southeast Asia were not solely dependent on the much smaller Japanese carmaker.

WAIT FOR CHANGE

"We see no major financial impact based on the current share price, as VW has already booked a burden of 263 million euros in Q3/2011 as a result of the reclassification of its Suzuki stake in the balance sheet," DZ Bank analyst Michael Punzet wrote in a research note.

The German company reiterated its refusal that same day and Suzuki said it was prepared to go through an arbitration process that could take up to two years.

Volkswagen's chief executive, Martin Winterkorn, said in an interview Monday with a German newspaper that he was patient and prepared to wait.

"We won't sell our Suzuki stake. If the current management at Suzuki doesn't want to work together with us, then maybe the next generation will," the VW boss said.

NordLB analyst Frank Schwope said VW had no financial need to act, as long as the arbitration court does not force VW to sell its shares back, since the German company is sitting on more than 21 billion euros in net cash.

Instead, it could sit back and wait for Suzuki to find itself in need of a partner again.

"Volkswagen should be interested in retaining its holding simply to ensure no other competitor like Fiat takes a stake in Suzuki. Volkswagen's patience lasted nearly 10 years with truckmaker Scania before the voting stake could be raised to the current 71.8 percent," he said in a note on Thursday.

VW has more problems than just Suzuki. The European Commission is taking Germany to court again over a law that protects state interests at Volkswagen.

Suzuki shares closed up 0.9 percent at 1,533 yen, compared with a 0.9 percent drop in the Tokyo exchange's auto subindex . Volkswagen finished up nearly half a percent at 113.15 euros, lagging its European rivals. ($1 = 0.751 Euros) (Additional reporting by Edmund Klamann; Editing by Edwina Gibbs, Matt Driskill and Jodie Ginsberg)