(Rewrites with Microsoft statement that it will not hand over emails)
NEW YORK, Aug 29 (Reuters) - A judge on Friday lifted a suspension on her order directing Microsoft Corp to turn over a customer's emails stored overseas to U.S. prosecutors, but the software company said it would not release any emails while it appeals the ruling.
Chief Judge Loretta Preska of the U.S. District Court in Manhattan had on July 31 upheld a magistrate judge's ruling on the emails, which have been held in a data center in Ireland.
That prospect had drawn concern from technology companies - fearful of losing revenue from foreign customers worried that U.S. law enforcement might win broad power to seize their data.
Microsoft in particular was stung by revelations last year by former National Security Agency contractor Edward Snowden and has been at pains to prove to customers that it does not allow the U.S. government unchallenged access to personal data on its servers.
Preska had delayed enforcement of the government's search warrant so Microsoft could appeal.
But prosecutors later said that because her order was not a "final, appealable order" and because Microsoft had yet to be held in contempt, there was no legal reason to enforce the stay.
Preska agreed, saying her order "merely confirmed the government's temporary forbearing of its right to stay enforcement of the order it secured."
She added that "the fact the court has not closed this case cuts against Microsoft's argument" that her order was final and appealable.
The judge ordered both sides to advise by Sept. 5 how to proceed.
However, Microsoft is still refusing to comply with the judge's order, pending attempts to overturn it.
"Microsoft will not be turning over the email and plans to appeal," a Microsoft spokesperson told Reuters. "Everyone agrees this case can and will proceed to the appeals court. This is simply about finding the appropriate procedure for that to happen."
The case appeared to be the first in which a corporation has challenged a U.S. search warrant seeking data held abroad.
AT&T Inc, Apple Inc, Cisco Systems Inc and Verizon Communications Inc submitted briefs supporting Microsoft's opposition to the warrant.
The case is In re: A Warrant to Search a Certain E-Mail Account Controlled and Maintained by Microsoft Corp, U.S. District Court, Southern District of New York, No. 13-mj-02814.
(Reporting by Jonathan Stempel in New York, additional reporting by Bill Rigby in Seattle; Editing by Bernard Orr)