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DETROIT, Oct 7 (Reuters) Billionaire investor Kirk Kerkorian shelved plans to raise his stake in General Motors Corp. and his financial adviser on GM quit the automaker's board days after GM nixed a three-way alliance with Renault-Nissan.

The action by Kerkorian, an activist investor who holds a 9.9-percent stake in GM, injected a new note of uncertainty to the outlook for the No. 1 automaker at a crucial point in its turnaround, analysts said.

Kerkorian, who was widely credited as a catalyst behind GM's earlier accelerated restructuring, could now gear up to challenge GM management in a proxy fight, analysts said.

GM shares, which had gained over 70 percent since January when Kerkorian stepped up pressure on GM, dropped 6.28 percent to close at $31.05 on the New York Stock Exchange.

''If you are investing in GM thinking that Tracinda is going to be an agent of change, this is not what you want to see,'' said Phil Orlando, chief portfolio manager of Federated Investors in New York, which does not hold GM shares.

Former Chrysler executive Jerry York, who became a GM director in February because of his ties to Kerkorian, tendered his resignation from the company's 12-member board on Friday.

His resignation letter acknowledged progress GM had made in cost-cutting and in taking other steps that he said had ''greatly'' reduced ''the risk of near-term bankruptcy.'' But York criticized ''an environment in the board room'' that made it hard to challenge management, and he raised doubts about the automaker's longer-term outlook.

''I have grave reservations concerning the ability of the company's current business model to successfully compete in the marketplace with those of the Asian producers,'' York wrote to GM lead director George Fisher.

GM DEFENDS PROGRESS, CALLS CLAIM 'ABSURD'' GM, which lost $10.6 billion last year, defended its progress in a restructuring it says is on track to cut more than $9 billion in annual costs. A GM spokesman also challenged York's claims about the oversight of the company's board.

''Eleven of our 12 directors are independent, and they all have extensive experience in business,'' said GM spokesman Brian Akre. ''For him to suggest they don't challenge management is absurd.'' Kerkorian's Los Angeles-based investment firm Tracinda Corp. said in a filing with the U.S. Securities and Exchange Commission it had abandoned plans to purchase 12 million additional GM shares that would have raised its stake to near 12 percent.

Sidestepping GM management, Kerkorian and York first initiated the partnership talks with Renault and Nissan this spring in meetings with Carlos Ghosn, who heads both automakers.

GM Chief Executive Rick Wagoner and Ghosn agreed to study the potential benefits of an alliance until October 15, but talks broke down over GM's conclusion that it would have reaped proportionally smaller savings from the tie-up than its rivals.

GM repeated on Friday that the decision this week to end the alliance talks had the unanimous support of its board, including York, who has been retained by Tracinda.

York said in his resignation letter that he had tried to express his concerns with the GM review of the deal at the board meeting on Tuesday when the issue was decided.

''There was certainly not a 'meeting of the minds' regarding my views as to how the study was conducted,'' he said. ''I thought I made that clear in the executive session at the end of the board meeting, but apparently I didn't.'' He added: ''The right thing to have done here -- from a governance, if not a legal perspective -- would have been for the board to have hired its own independent advisors.'' GM countered that investment banks Goldman Sachs and Morgan Stanley had acted as advisers on its review of the Renault-Nissan deal and concluded GM should ask for some additional payment as a condition of joining the alliance.

When Ghosn rejected that demand, the talks broke down, both sides said earlier this week.

York voted with the rest of the board to break off the talks this week and only expressed his concern with the process afterwards, GM's Akre said. ''He did that after the vote was taken,'' he said.

MARKET CAUTIOUS Analysts said the rancorous break between Kerkorian and GM could weigh on investor sentiment for the automaker, which is on track to be overtaken by Japan's Toyota Motor Co. as the global leader in sales and production.

Fitch Ratings managing director Mark Oline said the action by Tracinda ''potentially frees up Jerry York and Kirk Kerkorian to agitate more from the outside.'' Standard&Poor's issued a statement saying it was keeping GM on a negative ratings watch for a possible cut. It has GM with a ''B'' rating on its long-term debt, which is five levels below investment grade.

Other analysts agreed Kerkorian would be looking at ways to influence GM's turnaround strategy, or considering his own exit strategy from a $1.7 billion investment that is close to break-even.

''That means we are either lining up for a proxy fight, or he is going to sell the rest of his 56 million shares,'' said Kevin Tynan, analyst with Argus Research.

GM option volume surged with more than twice as many puts as calls trading as investors hedged against or looked to profit from the risk of a further decline in GM stock.

REUTERS DKS RAI0425