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* Notice comes one day after CP shelves DM&E extension * CP acquired DM&E for C$1.48 bln under previous CEO * CP will lay out turnaround plan in New York * Shares up 2 pct By Susan Taylor TORONTO, Dec 4 (Reuters) - Canadian Pacific Railway said on Tuesday it was exploring options and partnerships for the western part of its Dakota, Minnesota & Eastern Railroad, in a further retreat from the costly 2007 acquisition. Canada's second-biggest rail carrier, which will lay out a corporate turnaround plan to investors in New York this week, made the announcement one day after it shelved plans to extend the DM&E into the Powder River Basin coal-mining region. CP acquired the railroad for C$1.48 billion ($1.49 billion), gaining access to lucrative markets, notably ethanol. Analysts had viewed it as a costly deal and were not surprised at the abandonment of an expansion plan estimated to cost C$5 billion. CP said on Tuesday that the western section of DM&E track, a 660-mile portion from Tracy, Minnesota, west into South Dakota, Nebraska and Wyoming, would appeal to a low-cost operator interested in the area's grain, ethanol, clay and merchandise customers. "This portion of the CP network would be an attractive and highly viable opportunity for a low-cost operator," Chief Executive Hunter Harrison said in a statement. "CP has successfully built many partnerships with shortline and Class 1 railroads throughout its system." CP, which could not immediately give details on previous partnerships, said it will continue to serve customers along the line as it evaluates proposals. "We have undertaken similar reviews on other portions of our network in the past that have resulted in positive outcomes for shippers, employees and operators," Harrison said. CP, the No. 2 Canadian rail carrier behind Canadian National Railway Co, said on Monday it will take a C$180 million charge to abandon an option to build a 260-mile extension of the line into the coal region of northeastern Wyoming and southwestern Montana. It blamed slumping U.S. demand for thermal coal. Harrison, the hand-picked choice of CP's biggest shareholder, William Ackman's Pershing Square Capital Management, was appointed after a bruising proxy battle earlier this year that unseated the former CEO and chairman. Under a mission to improve efficiency, Harrison is expected to announce cutting 5 percent to 10 percent of staff, closing rail classification hump yards, reducing the fleet of rail cars, and moving the company's headquarters in Calgary, Alberta. Shares of CP added C$1.90 to C$93.25 on the Toronto Stock Exchange on Tuesday. The stock has climbed about 23 percent since Harrison was appointed CEO in late June.