ABN, Fortis to merge as planned before 2011 sale

* Dutch gov't to sell new group in 2011 at the earliest

* Sticks to plan to cut nearly 8,000 jobs

* Fortis's Dutch insurance units to be sold

* Former Finance Minister Gerrit Zalm to head bank

(Rewrites throughout, adds EC comments)

By Reed Stevenson and Harro ten Wolde

THE HAGUE/AMSTERDAM (Reuters) - The Dutch government mapped out the future of state-owned retail banks Fortis and ABN AMRO on Friday, keeping intact plans to merge them while spinning off Fortis's insurers, and selling or listing the combined bank as early as 2011.

The Dutch state decided to buy Fortis's Dutch businesses 50 days ago for 16.8 billion euros ($21 billion) after the now-dismantled Belgian financial group lost the confidence of investors and depositors, falling victim to the financial crisis while trying to complete its year-ago acquisition of ABN.

"We could have split up the bank and sold it to the highest bidder, but this did not seem the best solution for the taxpayer nor for the financial sector," Dutch Finance Minister Wouter Bos told reporters. [nLL182025]

"We want the Netherlands to be attractive as a financial center. We must do our utmost to create a strong Dutch player."

Bos's predecessor Gerrit Zalm will head the bank and steer it toward privatization in 2011 at the earliest, while directing the sale of Fortis's Dutch insurance units. [nLL183144]

A plan to cut up to roughly 8,000 jobs will go ahead, as this was already agreed with unions when Fortis bought ABN.

Fortis joined up with the Royal Bank of Scotland (RBS.L) and Santander (SAN.MC) in a consortium last year to buy and break up the Netherlands' biggest bank for 70 billion euros. Fortis wanted to combine ABN's Dutch bank branches with its own.

"It seems as though Bos and Dutch central bank president Nout Wellink want to correct an "error" -- so to speak -- from last year. At the time they approved the ABN takeover, and they have come to regret it," said Theodoor Gilissen analyst Paul Beijsens.

The rest of Fortis was mostly bought up by French bank BNP Paribas (BNPP.PA) in early October.

Together, Fortis and ABN employ about 30,000 in the Netherlands and compete with ING (ING.AS), SNS Reaal (SR.AS), and unlisted Rabobank [RABN.UL].

The Dutch government has also injected nearly 14 billion euros into ING, SNS and insurer Aegon (AEGN.AS) to bolster their balance sheets as the global financial crisis persists.

HURDLES REMAIN

The Dutch government and combined bank still face complex negotiations with European antitrust regulators to complete Friday's proposed plan and unravel previous agreements with Fortis.

The European Commission said the merger between Fortis's Dutch banking network and ABN could not take place until previously reached agreements with Fortis were resolved.

"There have been contacts between the Dutch government and the European Commission to see how the commitment can be implemented in the current circumstances," the Commission said in a statement. "Pending an agreement on this issue, no integration of the two banks can take place."

To comply with the Commission's antitrust demands, Fortis had agreed to sell 709 million euros worth of ABN assets to Deutsche Bank (DBKGn.DE) at a loss.

The regulator approved the sale, but it was put on hold by Dutch central bank (DNB) as it worked with the government to nationalize ABN and Fortis's Dutch business.

In a separate report, the Financieele Dagblad said ABN was hoping its overseas wholesale banking operations, which were mostly taken over by RBS, would no longer be spun off.

That would result in potentially billions of euros in writedowns for RBS.

An RBS spokesman declined to comment on the report.

"ABN has some international operations, but it is clear that it will be a big job to build up its international presence," Finance Minister Bos said.

Analyst Beijsens said: "Bos might start talking to RBS about the option to divest the business again."

Fortis shares closed 1.9 percent lower, compared with a 1.1 percent fall in the DJ Stoxx European banking index .SX7P.

($1=.7984 Euro)

(Additional reporting by Gilbert Kreijger and Catherine Hornby in Amsterdam, Mark John in Brussels; Editing by Andrew Macdonald and Erica Billingham)