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UPDATE 2-Lagardere sells Renault stake, to exit auto business

(Adds Lagardere confirmation)

By Alison Tudor and Jean-Michel Belot

LONDON/PARIS, Feb 24 (Reuters) - French media group Lagardere confirmed on Monday it was selling its 1.26 percent stake in Renault for 38.95 euros a share, pounding the carmaker's stock as much as five percent lower.

Lagardere, which is expected to announce the sale of its Matra car assembly unit, said in a statement that the sale of the stake confirmed the world's largest magazine publisher's decision to pull out of the auto business. Lagardere, one of a group of French firms that snapped up Renault stock in 1995 when its shares were sold on the market, said it was selling almost 3.6 million shares for a total of 140 million euros, after buying them for 97.6 million euros.

The statement came after a Lagardere spokesman confirmed talk by dealers that investment bank Lehman Brothers was placing the Renault shares on behalf of Lagardere via a quick auction to institutional investors, known as an accelerated bookbuilding process.

At 1230 GMT, shares in Renault were off 2.23 percent at 38.95 euros, while the DJ Stoxx Autos index slipped 0.68 percent. Renault stock earlier fell as much as 5.2 percent.

Renault declined to comment.

Lagardere has assembled a number of vehicles for Europe's fourth-largest carmaker through its Matra Automobile unit, which has been up for sale for a while. Lagardere had hoped to sell the division by the end of last year, but analysts are now expecting news on this before the end of this month.

"This sale confirms Lagardere's decision to pull out of automobile activities," Lagardere said.

Last year Renault grabbed back production of its Espace van from Matra, leaving the Lagardere unit with only the Avantime coupe to manufacture at its plant at Romarantin in central France.

The futuristic Avantime has had lacklustre sales, with only 30 of the models coming off assembly lines each day. Last year, sales at Lagardere's auto unit slumped 31 percent to 782 million euros.

Last week, Lagardere chief Jean-Luc Lagardere resigned from the board of Renault in a move many viewed as a prelude to a more formal split.

"This has been talked about for quite some time," said Stephen Reitman of Merrill Lynch. "It is better that the (share) overhang is dealt with."

Lagardere was for years an aerospace and engineering group that also owned a magazine business, but has been metamorphosing into a media group.