* Prosecutors do not demand jail term for Lebedev
* Tycoon threw punches at rival on TV chat show
* Rical urges court to drop accusations (Adds Lebedev quotes, Polonsky statement)
By Maria Tsvetkova
MOSCOW, June 28 (Reuters) - Russian prosecutors dropped a jail threat against media magnate Alexander Lebedev over a televised brawl on Friday, a move he said showed the absurdity of a trial he portrays as President Vladimir Putin's revenge for criticising the government.
State prosecutor Nadezhda Ignatova told a Moscow court at Lebedev's trial that the backer of two British newspapers, The Independent and London Evening Standard, should be convicted of political hatred but not a separate charge of hooliganism.
Instead of pressing for the maximum five years in jail over the punches he threw at property developer Sergei Polonsky, she asked for the multi-millionaire's movements to be restricted for 21 months and said he should be barred from public events.
In another unexpected turn at a trial that has at times collapsed into farce, Polonsky, who has not attended since it began on May 7, issued a statement urging the court to forgive Lebedev.
"At least they've recognised the absurdity of the charges of political hatred and hooliganism that were thought up by the (state) Investigative Committee," Lebedev said. "We consider that I acted in self-defence."
He has sat quietly through the trial in his trademark attire of a jacket, shirt, jeans and white sneakers, and presented glowing character references from celebrities such as Elton John, Kevin Spacey, Hugh Grant, Keira Knightley and Bono.
Much of the time he has shown his contempt for the proceedings by tapping away on his iPad in court.
The judge could still impose a jail sentence when he announces the verdict, now expected on Tuesday, but this is extremely unlikely after the prosecution's summary.
Lebedev, 53, held up the decision as evidence of the weakness of the case against him, rather than as a reprieve by enemies seeking retribution against him for criticising the government over corruption.
"They (the investigators) received a sort of humiliation when the prosecutor changed position in the court," Lebedev, a former KGB spy in London, told reporters after Friday's hearing. "Their whole pack of documents is just complete nonsense".
The powerfully built former billionaire jumped out of his chair and hurled punches at Polonsky after he goaded Lebedev as they recorded a television talk show in September 2011. Polonsky was knocked backwards and off the studio podium.
Lebedev portrayed the punches as a pre-emptive strike because he felt under threat.
Polonsky faces charges over a fight he had in Cambodia but fired his lawyers on Friday in a statement demanding forgiveness for Lebedev that was ignored by the court.
Ignatova said Lebedev should for one year and nine months be barred from moving house or changing job without permission, and should not be allowed to take part in or organise public events. The judge later retired to consider the verdict.
Lebedev is rare among oligarchs in speaking out against the Kremlin since the imprisonment of oil tycoon Mikhail Khodorkovsky, who was arrested in 2003 after falling out with Putin. Khodorkovsky's Yukos oil company was broken up and sold off, mainly into state hands.
Lebedev has also angered the Kremlin by co-owning - with former Soviet leader Mikhail Gorbachev - Novaya Gazeta, an investigative Russian newspaper which is critical of Putin.
He sees the trial as a warning to other Russian tycoons who do not share Putin's views, and describes his treatment as part of a broader crackdown on dissent since Putin started trying to reassert his authority after protests against him last year.
His business interests in Russia include a bank, National Reserve Corporation, real estate assets and a potato farm. (Reporting by Maria Tsvetkova,; Additional reporting by Megan Davies; Writing by Timothy Heritage; editing by Ralph Boulton)