UPDATE 2-Fate of GM in hands of US bankruptcy judge

* GM seeks court approval for sale

* GM lawyer says company losing market share

* Dissenting bondholder group asks Judge to block sale

* Judge's ruling expected no later than July 10
(Recasts first sentence, adds details on timing of judge's
ruling)

By Emily Chasan and Phil Wahba

NEW YORK, July 2 (Reuters) - A federal bankruptcy judge
will decide the immediate fate of General Motors Corp's
GMGMQ.PK effort to quickly sell its best assets to a group
funded by the U.S. government, after a three-day court hearing
concluded on Thursday.

The iconic U.S. automaker wrapped up the final day of its
sale hearing in U.S. bankruptcy court in Manhattan by asking
Judge Robert Gerber for approval to sell its best assets to a
"New GM" funded by the U.S. government.

GM is seeking approval for the sale just one month after
filing for bankruptcy protection. Judge Gerber asked GM's
attorneys to submit papers to him by Friday and is expected to
rule before July 10 -- the date after which the government has
said it could stop funding GM.

In court on Thursday, a group of dissenting bondholders
urged Judge Gerber to block the sale, calling it the first
attempt at "Chapter 11 nationalization" and arguing the
government was trying to circumvent the law.

But GM's lead bankruptcy attorney, Harvey Miller of law
firm Weil Gotshal & Manges, told Judge Gerber that anything but
approval of the sale would have "catastrophic" and
"irreversible" consequences for GM and the auto industry.

"The objectors are asking your honor to play Russian
roulette," Miller told Judge Gerber, in response to claims from
the bondholder group that GM could pursue a more traditional
Chapter 11 reorganization plan rather than a fast track sale.

"These are assets that will deteriorate in value, and that
deterioration will be felt by all stakeholders," Miller said,
noting that June auto sales this week showed GM was losing
market share to Ford Motor Co (F.N).

This week GM's chief executive, Fritz Henderson, and Harry
Wilson, a senior member of the Obama administration's autos
task force, told the court the sale is GM's only option for
survival. Henderson said he does not expect GM to make money in
2009.

If the deal were approved, New GM plans to operate the best
parts of the old company, like Chevrolet and Cadillac, with a
less-expensive workforce, smaller dealer network, and much less
debt. The "old GM," which would include unpopular brands and
unneeded factories and liabilities, would be liquidated in
bankruptcy court.

BONDHOLDER GROUP RESISTS

Earlier in the court hearing on Thursday, Michael Richman,
a Patton Boggs attorney representing a group that calls itself
the "Unofficial Committee of Family and Dissident GM
Bondholders," argued that the proposed deal had not been
negotiated as a legitimate sale to an independent party.

Instead, he said the government determined what would be
needed to make a "settlement offer" to "favored parties" like
the United Auto Workers union, and then it decided on the price
of the sale on the back end of the negotiations.

Richman said "it's not credible" that the U.S. government
would turn on GM after providing the company with billions of
dollars in support. He asked the judge to "call the bluff" that
the government would walk away from the automaker if a deal
were not done by July 10.

GM, however, has said the holders of more than 50 percent
of the company's bonds support the sale and a lawyer for
Wilmington Trust, the indentured trustee for much of GM's
bonds, said his client was not willing to "take the risk"
involved with a reorganization plan, which could further reduce
bondholders' recovery.

Under the terms of the deal, the U.S. Treasury would
provide $60 billion in financing to the new company, including
a proposed $50 billion that would give the U.S. Treasury a 60
percent stake in the company.

The UAW would gain a 17.5 percent stake, the Canadian
government would own about 12 percent, and GM bondholders would
be expected to obtain about 10 percent of the new company.

A successful sale of GM's main assets would be the second
big victory for the Obama administration's auto task force. It
helped broker the sale of Chrysler LLC to a group led by
Italy's Fiat SpA (FIA.MI) last month. The task force's Wilson
said in court this week that the government could conduct an
initial public offering for New GM as soon as 2010.

GM's official unsecured creditors' committee said in court
that it was withdrawing its limited objection to the sale due
to new agreements over GM's wind-down budget and a deal for New
GM to take on Michigan workers' compensation claims from Old
GM.

The case is In re: General Motors Corp, U.S. Bankruptcy
Court, Southern District of New York, No. 09-50026.
(Reporting by Emily Chasan and Phil Wahba, editing by Matthew
Lewis and Gerald E. McCormick)