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UPDATE 3-Canada to ease airline joint-venture rules, guarantee passenger rights

rights@ (Recasts first paragraph, updates stock prices)

MONTREAL/OTTAWA, May 16 (Reuters) - The Canadian government unveiled new rules that allow airlines to form joint ventures and guarantee passenger rights on Tuesday, lifting shares of airline stocks.

Transport Minister Marc Garneau said he would consider approving joint ventures that allow two or more carriers to coordinate items like scheduling, pricing and sales on certain routes, and confirmed plans announced last November to relax international ownership restrictions on Canadian air carriers, lifting investment limits to 49 percent from 25 percent.

Air Canada stock rose 5 percent, hitting a 10-year high of C$17.04 in midday trading, while shares of smaller rival WestJet Airlines were up 2 percent.

The new regulations would prevent overbooking incidents like a recent high-profile case of a United Airlines passenger being dragged off a plane in Chicago. The rules would apply to all carriers operating flights into and out of Canada, and ensure that passengers who buy tickets for a flight won't be forced off a plane because of overbooking, Transport Minister Marc Garneau said.

"Such incidents will not be tolerated in Canada," Garneau told reporters in Ottawa. "This is non-negotiable."

Garneau said the independent Canadian Transportation Agency would be responsible for drawing up the new regulations, which would create clear standards of treatment for cases like lost baggage and lengthy delays on the tarmac, while ensuring fair compensation for passengers who voluntarily give up their seats.

Canada aims to have the rules, which would require carriers to report performance data, in place by 2018.

Air Canada is on track to complete a joint venture with Air China.

Spokeswomen for the two carriers could not be immediately reached for comment.

The new regulations, Garneau said, would ensure the traveling public is "treated like passengers and not numbers."

The Canadian regulations were expected since 2016, before the April incident on a United Airlines flight which was filmed and quickly went viral on social media. A 69-year-old passenger was dragged from the flight at Chicago's O'Hare International Airport after he refused to give up his seat to make room for crew members, sparking a global backlash against airline overbooking practices.

In the United States, lawmakers threatened United and other carriers earlier this month with legislation aimed at improving customer service, but legislators did not outline any immediate plans for increased oversight of the sector. (Reporting by Allison Lampert in Montreal and Leah Schnurr in Ottawa; editing by G Crosse and Jonathan Oatis)