HOUSTON, March 21 (Reuters) - A U.S. court officer

overseeing an auction of shares in the parent of Venezuela-owned

refiner Citgo Petroleum is recommending a judge choose a $3.7

billion offer by an affiliate of Contrarian Funds to set the

floor for a new bidding round this year, according to a court

filing on Friday.

Four potential "stalking horse" bids for shares in Citgo

parent PDV Holding were received by a March 7 deadline, the

filing said.

The offer by Contrarian Funds' affiliate Red Tree

Investments was recommended by the special master in charge of

the auction. Judge Leonard Stark must accept or reject it before

the auction moves on.

"Red Tree's proposed transaction has the second highest

purchase price, and the special master believes it has the least

conditionality," the filing said.

"The special master considers that the combination of value

and the certainty of the proposed transaction results in its

being the best available stalking horse."

The Delaware court decided to set a minimum bid for PDV

Holding after most creditors in an auction last year rejected a

highly conditional $7.3 billion offer by an affiliate of hedge

fund Elliott Investment Management.

A topping-off period is expected to follow for rival bids to

be submitted, with a final hearing set for July, according to

the court's schedule.

By choosing a starting bid, Stark hopes to maximize proceeds

for creditors in the eight-year-long case, which previously

found PDV Holding liable for the country's debts.

Caracas-headquartered PDVSA is Citgo's ultimate parent.

If it wins the process, the stalking horse would acquire

100% of PDV Holding's shares, with proceeds to be distributed to

creditors at closing. Red Tree's proposed transaction provides

for $3.24 billion in cash and $458 million in non-cash

consideration, according to the court filing.