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UPDATE 3-Air Berlin files for insolvency after Etihad withdraws support

* Shareholder Etihad withdraws financial support

* Lufthansa says in talks for take over of parts of group

* Government provides bridging loan, flights continue

* Shares in Lufthansa, budget rivals rise (Adds details on assets, airlines)

BERLIN, Aug 15 (Reuters) - Air Berlin, Germany's second-largest airline, filed for bankruptcy protection on Tuesday after key shareholder Etihad Airways withdrew funding following years of losses, leaving valuable runway slots up for grabs.

The move offers Lufthansa and rivals a chance to acquire slots at airports such as Berlin Tegel and Duesseldorf, with Germany's largest airline keen to defend its domestic position against expansion by low-cost rival Ryanair.

Lufthansa confirmed it was in talks to take over parts of the business, while a source said easyJet was the second airline referred to by the government as being in talks with Air Berlin. The British budget carrier declined to comment.

The insolvency comes as thousands of Germans enjoy their summer holidays and just ahead of a September general election.

Berlin has granted a bridging loan of 150 million euros ($176 million) to allow Air Berlin to keep its planes in the air for three months and secure the jobs of its 7,200 workers in Germany while negotiations continue.

The government said it expected decisions from these negotiations in coming weeks.

Lufthansa has already leased Air Berlin planes to provide flights by its Eurowings budget airline and has made no secret of its interest in taking on more of Air Berlin's business, although debts and anti-trust issues were potential obstacles.

"Lufthansa has played a canny waiting game over a number of years and is now well placed to cherry pick those parts of Air Berlin's operation that suit it best without buying the whole loss-making enterprise," Jonathan Wober, analyst at CAPA-Centre for Aviation, said.

RECORD LOSS

Ryanair said Lufthansa was being set up to take over Air Berlin, which it said would breach competition laws. But German transport minister Alexander Dobrindt said he was confident there would be no anti-trust issues because the business would be sold off in bits.

Air Berlin, which became famous for its "Mallorca shuttle" services, piled up debt after a series of takeovers and bookings have been hit in recent months by concerns over its finances.

It made a net loss in almost every year since 2008 and in 2016 reported a record deficit of 782 million euros ($915 million), equivalent to more than 2 million euros a day.

Funding from Etihad Airways, which bought into the airline in 2011, has helped to keep it afloat and the Abu Dhabi-based airline provided an additional 250 million euros in April.

But Etihad has been reviewing its European investments after they failed to bring in expected profits. Alitalia, another of Etihad's investments, is also in administration and is seeking bidders.

Meanwhile talks between Etihad and TUI, Europe's largest tour operator, about forming a joint venture holiday airline by merging TUIfly with Air Berlin's leisure airline Niki collapsed earlier this year.

Shares in Air Berlin were down 32 percent at 0.53 euros by 1418 GMT, valuing the airline at roughly 60 million euros. Ten years ago the carrier was worth around 1 billion euros.

Lufthansa shares were up 4.1 percent at 20.47 euros.

Pilots' union Vereinigung Cockpit (VC) blamed the shortcomings of past management at Air Berlin for its woes and expressed anger with Etihad. "It is a scandal that Etihad is dodging its responsibility and is leaving Air Berlin's staff out in the cold," VC President Ilja Schulz said in a statement.

($1 = 0.8548 euros) (Reporting by Victoria Bryan, Maria Sheahan; and Gernot Heller; Editing by Greg Mahlich and David Holmes)