By Michael Connor

Dec 19 (Reuters) - The judge overseeing America's biggest municipal bankruptcy on Wednesday blocked a legal bid to force Alabama's Jefferson County to keep running a hospital that serves the poor, which the county says it can no longer afford to operate.

Birmingham, the state's largest city and located in Jefferson County, had asked U.S. Bankruptcy Judge Thomas Bennett to exempt it from a ban on lawsuits against the County so that it could press a claim in state court that the county's underused Cooper Green Mercy Hospital must maintain in-patient and emergency services.

Birmingham and county residents do not want to lose the hospital's services.

But Bennett said in a 37-page opinion that Birmingham was unlikely to win its case in state court and that he saw no reason to lift automatic stays against lawsuits that Jefferson County has had in place since its landmark, $4.23 billion bankruptcy petition filed on Nov. 9, 2011.

"The automatic stays preclude the actions sought to be brought in Alabama's courts by the city parties, and relief from the automatic stays is denied," Bennett said.

Now in negotiations with creditors on a workout plan, Jefferson County has cut hundreds of jobs, reduced government services and defaulted on billions of dollars in bonds in a crisis blamed on overspending on a sewer system, political corruption and the loss of a local tax on wages.

The decades-old hospital, which loses $10 million or more a year and specializes in indigent care, is winding down its in-patient and emergency departments. Those actions will eliminate 200 jobs and leave outpatient and urgent care clinics at Cooper Green as of January 1.

Follow us on Twitter @ReutersLegal | Like us on Facebook