HOUSTON (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.