* Court rejects application for protection from creditors
* Court says not convinced process would work for Saab
* Company sought protection to secure Chinese investment
* Union mulls bankruptcy request
* Saab to appeal decision (Adds quotes from head of union, local resident; changes dateline from STOCKHOLM)
By Johan Ahlander
TROLLHATTAN, Sweden, Sept 8 Saab said it was "not dead yet" after a Swedish court pushed the ailing carmaker closer to collapse by rejecting its application for protection from creditors.
The court decision could open the way for Saab itself, unions or creditors to seek bankruptcy for a company where a chronic shortage of cash has halted production and left suppliers and workers unpaid.
Saab, which brought the application to win time for vital Chinese investment, said it would appeal the ruling and provide more information on Friday.
"We are not dead yet. We were not dead yesterday, we are definitely not dead today," news agency TT quoted Victor Muller, chief executive of Saab's owner, Swedish Automobile SWAN.AS, as saying.
Muller told Reuters the court had rejected the application because it wanted more information about "the process for Chinese investors and the timing of funds."
He said Saab would submit those details as soon as possible. If the appeal is rejected "it would be a major setback," he said. "But we still have many ways of skinning the cat."
He declined to say what other financing options were being discussed.
People on the streets of the western Swedish town of Trollhattan, where Saab is based and which relies heavily on the company as a key local employer, were concerned.
"It's a very sad day for Trollhattan," said Johan Hansson, a construction worker, on a nearly deserted street in downtown Trollhattan.
"I feel for the families, especially the ones where both parents work at Saab. There's quite a few of them," he added.
The court set a deadline of Sept. 29 for an appeal. A court spokeswoman said that while Saab had no court protection, petitions for bankruptcy could be made.
The Vanersborg district court in western Sweden said it was "unclear how the company would be able to solve its liquidity crisis and continue operations."
Trading in Swedish Automobile's Amsterdam-listed shares has been suspended. Regulator AFM said the shares would remain suspended. It will decide after the company's statement on Friday whether to allow trading to resume.
The IF Metall union said it was considering its course of action. Unions have said they could seek Saab's bankruptcy to activate a state scheme to pay wages, even though that decision would mean the end of Saab.
"We have to look after our members' interests. If that means taking such a harsh decision, then so be it," IF Metall head Stefan Lofven told reporters as he was entering a meeting with the local union chapter in Trollhattan. But he added that he still held out some hope Saab could avoid bankruptcy.
"Yes, otherwise we would have taken a decision already. But since we believe there still is a chance, we're here," he said.
Saab town caught between hope and despair [ID:nL5E7K524J]
Saab's bankruptcy protection application [ID:nL5E7K7204]
Saab CEO, eternal optimist, seeks a saviour[ID:nLDE7860M4]
Saab was scheduled for closure by owner General Motors Co (GM.N) in 2010 but was rescued by Amsterdam-listed Spyker Cars, which later changed its name to Swedish Automobile.
Trollhattan mayor Paul Akerlund said he still hoped for the best. "Of course, this is not a good thing. One hopes that in some way they can find a solution in the end. I'm not giving up," he told Reuters by telephone.
Swedish Automobile sought protection from creditors to stop them pushing Saab into bankruptcy and give it time to secure investment from Chinese car companies Pangda Automobile Trade Co Ltd (601258.SS) and Zhejiang Youngman Lotus Automobile.
The Chinese companies have agreed to take a combined majority stake in the firm for a total of 245 million euros ($344 million), but the investments need official Chinese approval.
The court said it was not clear if this would be forthcoming and that Saab had only provided very general information about negotiations for other financing options.
The court said there was no reason to believe a new creditor protection process, known as a reconstruction, would work. Saab, when it was owned by GM, went through a reconstruction in 2009-2010.
Chinese authorities in the past have halted planned investments by Chinese companies, including Saab's own failed deal with Hawtai Motor Group in May and Sichuan Tengzhong Heavy Industrial machinery's bid for GM's Hummer, which collapsed in 2010. [ID:nLDE5BS12U] [ID:nTOE706015] ($1 = 0.712 Euros) (Reporting by Johan Ahlander; Additional reporting by Roberta Cowan, Mia Shanley, Anna Ringstrom, Sara Webb and Patrick Lannin; Editing by David Cowell, Elaine Hardcastle and John Wallace)
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