UPDATE 1-U.S. judge rejects Greece bid to dismiss Sotheby's lawsuit over bronze horse

(Adds comment from lawyer for the plaintiffs, paragraph 12)

By Jonathan Stempel

NEW YORK, June 21 (Reuters) - A U.S. judge on Friday rejected Greece's effort to dismiss an unusual lawsuit in which Sotheby's and the owners of an ancient Greek bronze horse sued the country, seeking court permission to put the statue on the auction block.

U.S. District Judge Katherine Polk Failla rejected Greece's claim that she lacked jurisdiction under the Foreign Sovereign Immunities Act, saying the case triggered an exception for "commercial activity" that allowed Greece to be sued.

Greece had argued that the case should be dismissed, warning that a broad interpretation of the commercial activity exception "would have a chilling effect on the ability of foreign sovereigns to protect their cultural heritage."

Leila Amineddoleh, a lawyer for Greece, said "we're obviously disappointed" with the decision, adding that the country may appeal.

The June 2018 lawsuit was thought to be Sotheby's first against a government, according to the Financial Times.

Filed by Sotheby's and descendants of art collectors Howard and Saretta Barnet, the lawsuit sought a declaration that the family owned the 14-centimeter (5.5-inch) high horse, which dates from the 8th century BC - and that Sotheby's could sell it.

According to the complaint, the horse was purchased by the Barnets for about 15,000 British pounds in 1973, and might have fetched $150,000 to $250,000 at an auction that had been scheduled for May 14, 2018.

But the plaintiffs said the auction was scuttled when Sotheby's received a "demand letter" from Greece's Ministry of Culture on May 11, 2018, which said the horse had been stolen and must be returned to the country.

In her 18-page decision, Failla said Greece engaged in commercial activity by sending the letter, triggering the exception to sovereign immunity.

She also said some U.S. courts have said acts taken to advance a sovereign country's cultural mission could be deemed commercial in nature.

Greece's demand letter "is analogous to a private citizen attempting to enforce his property rights," Failla wrote.

Gary Stein, a lawyer for Sotheby's and the Barnet family, said his clients are pleased with the decision "and look forward to bringing this case to a successful conclusion."

The case is Barnet et al v Ministry of Culture and Sports of the Hellenic Republic, U.S. District Court, Southern District of New York, No. 18-04963. (Reporting by Jonathan Stempel; Editing by Sandra Maler)