* Chairman says to deepen cooperation with Lufthansa
* Turkish Airlines shares climb 5 percent
* Airline sector has seen series of partnerships
* Two airlines in talks about cross-shareholdings - paper (Adds newspaper report, bullet point)
By Daren Butler and Marilyn Gerlach
ISTANBUL/FRANKFURT, Nov 5 Official hints of an operational tie-up with Lufthansa drove a jump in Turkish Airlines' shares and left analysts speculating over the possibility of a joint venture on certain routes to Asia.
Turkish Prime Minister Tayyip Erdogan's declaration on Saturday that he had agreed with German Chancellor Angela Merkel to "joint management" of the two companies left most observers scratching their heads.
While there are signs Turkey wants to sell a strategic stake in an airline servicing one of the few economies in Europe and Middle East that is growing strongly, analysts say Lufthansa has neither the money nor the inclination for an acquisition.
Lufthansa is in the middle of a 1.5 billion euro cost-cutting programme to combat rising fuel costs and increased competition from low-cost and Gulf rivals.
Turkish Airlines and Lufthansa have been working together for some time, bolstered by Germany's large Turkish population, the pair's membership of the Star Alliance marketing venture and a 50-50 joint venture in charter carrier SunExpress.
"Now it is a matter of advancing this cooperation somewhat further," Milliyet newspaper quoted Turkish Airlines chairman Hamdi Topcu as saying on Monday.
"We discussed this subject in communication with the Lufthansa side. The Lufthansa management shared this communication with German Chancellor Angela Merkel.
Shares in Turkish Airlines rose as much as 5 percent in Istanbul and closed 2.63 percent higher at 4.29 lira, helped by news of a rise in Turkey's credit rating that boosted its financial markets across the board.
Financial Times Deutschland, citing company sources, said in a report to be published on Tuesday that the two airlines were discussing a cross-shareholding, possibly setting up another joint venture.
The paper said that a cross-shareholding would make any arrangement between the airlines even more binding, though a merger was not being discussed.
A possible joint venture would share profits on certain routes, it said, adding that Lufthansa would also offer close cooperation with its catering, IT and maintenance and repair divisions.
A spokesman for Lufthansa declined to comment.
Lufthansa and the Turkish carrier have had a bilateral code-sharing agreement since 2007 and Erdogan's comments come at a time when soaring fuel prices and a weak global economy have forced many airlines to form partnerships.
Germany's Turkish community numbers more than 2 million and Germany is Turkey's biggest trading partner.
A Turkish Privatisation Administration official said in late September that there had been no decision on the method or size of a sale of some of the government's 49.12 percent stake in Turkish Airlines after a newspaper reported that the state planned a 30 percent block sale.
Analysts covering Lufthansa said that a merger could not be ruled out, though such a scenario did not fit with Lufthansa's restructuring programme or its strategy of recent years.
A London-based analyst who declined to be identified told Reuters that widening the basic cooperation with Turkish Airlines would make more sense.
"It would be a logical strategic response to IAG, and Qatar and Air France, and Etihad, but whether it came to a merger I would find surprising," he said.
Qantas Airways clinched a 10-year alliance with Dubai's Emirates in September while Air France-KLM agreed last month with Etihad and Air Berlin on a code-share agreement - where two or more airlines share the same flight instead of running separate operations.
Analyst Stefan Kick of Silvia Quandt said he believed that Lufthansa and the Turkish carrier could set up a profit-sharing joint venture for some routes, similar to one Lufthansa now has with United for U.S. destinations.
Efe Kalkandelen, an analyst at Is Investment in Turkey, did believe in the idea of a merger and said the two airlines could create a holding company, with each airline retaining their independence, similar to the structure of Air France and KLM.
"I think the merger will be the same as Air France/KLM," Kalkandelen said in comments emailed to Reuters.
He said Lufthansa would benefit from the lower cost operations of Turkish Airlines and valued the Turkish state's 49 percent stake at about 1.1 billion euros ($1.41 billion).
Lufthansa Chief Executive Christoph Franz told analysts on Oct. 31 that Lufthansa had set up various "intelligent partnerships" in the past and it would first look at the Star Alliance members for any tie-ups in future. ($1 = 0.7785 euros) (Editing by Jane Merriman and David Goodman)