PARIS (Reuters) - A panel of experts at French market regulator AMF on Friday rejected LVMH's attempt to torpedo its enquiry into the luxury group's build-up of its initial 17 percent stake in rival Hermes .

LVMH called for the judicial procedures used in the enquiry to be declared invalid, raising question marks about the entire process, its outcome and likely sanctions.

The bid to halt the inquiry came as French securities regulator AMF's sanctions committee met to present a report on LVMH's secret accumulation of a stake in silk scarf and leather handbag maker Hermes, revealed in October 2010.

"The procedure should be dismissed. .. There are serious violations to the presumption of innocence, in the impartiality of investigators," LVMH lawyer George Terrier said at a hearing.

But the AMF, ahead of making any declaration on the merits of the case, rejected LVMH's claims that there were flaws in the procedure.

LVMH, which now owns 22.6 percent of Hermes, surprised the market in October 2010 when it announced it had a 14 percent stake, gained partly via derivatives that allowed it to not declare its holding.

Hermes has fought LVMH's stakebuilding every step of the way and is also challenging it in a separate court procedure. The AMF finding will not have any impact on the court case, but still could have an impact on the debate over LVMH's controversial move.

Hermes has argued that LVMH - maker of Louis Vuitton leather bags and a host of other luxury products - did not tell the market for many months it was a buyer of the shares, which would have boosted its shares if made public.

In France, companies are required to disclose when they take a stake worth more than 5, 10 and 15 percent of a another company's capital if the target is listed on the stock market.

(Reporting by Astrid Wendlandt and Pascale Denis; Editing by Christian Plumb and Elena Berton)

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