* Court says next hearing on Sept. 9
* Company shares rise after govt proposal (Adds next hearing date, analyst comment)
NEW DELHI, Sept 1 (Reuters) - India's top government lawyer has asked the Supreme Court to leave 40 of the 218 coal blocks allocations the court declared illegal with companies that operate mines that are either producing or close to doing so.
India's highest court ruled last week that the country's decades-old method of allocating coal mining concessions was illegal and arbitrary, putting investments worth billions of dollars at risk.
The suggestion by Attorney General Mukul Rohatgi sent shares of some of the companies that hold coal blocks sharply higher on speculation that the court would not order a wholesale cancellation of the allocations.
Rohatgi also told a Supreme Court hearing that the government was open to re-auctioning the coal blocks if their allocations are revoked.
"If the court does allow the companies to keep the mines, possibly after paying some sort of a fine, that will be good news," said Dipesh Dipu, partner with Jenissi Management Consultants. "Costs may rise but at least they will have certainty of coal supply."
The court asked the federal government to submit a list of operational mines and said the next hearing will be held on Sept. 9.
The award of more than 200 coal blocks to steel, cement and power companies has been at the centre of the so-called "Coalgate" scandal, estimated in a 2012 audit report to have cost the exchequer as much as $33 billion.
Jindal Steel and Power Ltd, Hindalco Industries Ltd and Sesa Sterlite Ltd are some of the firms that have already spent heavily on steel and power plants based around the coal blocks.
Jindal Steel shares closed the day up 6 percent, Hindalco 4 percent and Sesa Sterlite about 2 percent. The broader stock market edged up 0.8 percent. (Reporting by Suchitra Mohanty and Krishna N. Das; Editing by Douglas Busvine, Muralikumar Anantharaman and Michael Urquhart)