UPDATE 2-Criteria bets on Erste Bank as potential partner

* Says stake is “initial step” towards E.Europe position

* Price indicates shares bought before October

* Says only talking to Erste in the region

* Could consider other options if no deal

(Adds details; comments from Criteria management, analyst)

MADRID/VIENNA, March 2 (Reuters) - Spain's Criteria Caixacorp CRIT.MC said on Monday it sees Austria's Erste Group Bank ERST.VI, in which it holds a near 5 percent stake, as the best alternative to grow its footprint into Eastern Europe.

“After checking in great detail which alternatives were open to us for our first footprint into Central and Eastern Europe, we decided Erste Bank was the best for many reasons,” managing director Franciso Reynes told analysts.

Criteria, the holding company of Spain’s largest savings bank, said on Monday it bought a 4.9 percent stake in Erste Bank last year.

It said it was in talks with Erste’s main shareholder, a charity, about forming a “preferred partnership agreement” to boost cooperation between the two institutions.

Reynes declined to comment further on the state of the talks, but said Criteria is not talking to anyone else currently in the region. He did not rule out other options if no agreement is reached.

At just under 5 percent, the size of the stake acquired in Ernst Bank meant that Criteria could avoid reporting the purchase, which appears to have happened before October 2008.

Investors who cross the 5 percent threshold must disclose their holdings under Austrian law.

Criteria said it paid 628 million euros ($791 million) for the stake, an average price of 40.43 euros per share, Reuters calculations showed. Erste shares have not traded above 40 euros since the end of September.

Erste shares, which have lost more than half of their value this year on investor concerns about the crisis in emerging Europe, closed down 5.5 percent at 7.25 euros, while Criteria lost 3.15 percent to 2.15 euros.

“Criteria’s move would seem a bit risky at the moment given the multiple concerns expressed about the economic crisis in Eastern Europe,” an analyst, who did not want to be named, said.

Criteria said it was convinced about the growth potential for Eastern European countries, flagging the low level of penetration in the banking system.

“This means an important opportunity for Erste Bank. It is a leading banking franchise ... In times of volatility, this is good,” Reynes said. (Reporting by Judy MacInnes in Madrid and Boris Groendahl in Vienna; Editing by Simon Jessop and Andrew Macdonald) ($1=.7940 euros)