UPDATE 1-Dow put-off litigation in Kuwaiti dispute-source

(Adds details on Kuwait joint venture, background, byline)

By Euan Rocha

NEW YORK Feb 20 (Reuters) - Dow Chemical Co (DOW.N) said on Friday it had entered into arbitration proceedings to settle a dispute with a Kuwaiti firm that bailed out of a $17.4 billion joint-venture deal, and a person familiar with the matter said the U.S. company had put off a lawsuit for now.

Dow CEO Andrew Liveris said last month that Dow was simultaneously pursuing both litigation and arbitration against Kuwait's Petrochemical Industries Co, which backed out of a deal to buy 50 percent of Dow's plastics business.

Dow has so far not launched any litigation proceedings, the source said.

Dow, the biggest U.S. chemical maker, was widely expected to stop short of taking aggressive action against its Kuwaiti partners for fear of reprisal from Kuwaiti authorities.

Dow has other joint ventures with PIC in Kuwait, and it is also expecting a $1 billion investment from the Kuwait Investment Authority (KIA) that could be jeopardized.

The joint venture agreement fell apart after some Kuwaiti parliamentarians objected to it. Kuwait's parliament launched an investigation in January into whether there was wrongdoing by officials involved in setting up the joint venture.

Dow has denied any wrongdoing.

In a filing with the U.S. Securities and Exchange Commission, Dow said it had initiated arbitration proceedings against PIC on Feb. 18, alleging that PIC had breached its agreement by failing to close the deal on Jan. 2.

Dow is seeking damages in excess of $2.5 billion from the arbitration proceedings.

Dow is keeping all options on the table and may pursue litigation later, the person familiar with the matter said.

Dow declined to comment beyond confirming that it was in arbitration proceedings.

ROHM AND HAAS

Dow agreed in July to acquire Rohm and Haas ROH.N for $15.3 billion to expand its specialty chemicals business, but the failure of the Kuwait venture has jeopardized the deal.

Dow had planned to use the proceeds, along with the $1 billion KIA investment, to fund the takeover.

Last month, Dow said it would not close the Rohm and Haas deal on schedule in light of deteriorating economic conditions and the failure of the Kuwait deal.

Rohm and Haas has sued Dow in a bid to force it to close the deal, arguing that Dow had no legal basis to walk away.

Rohm and Haas has asked a Delaware court to order Dow to complete the transaction, and a trial is scheduled to start on March 9.

Dow's shares closed down 1.2 percent at $8.10.

(Reporting by Euan Rocha; Editing by Ted Kerr)