CORRECTED - UPDATE 1-Barnes & Noble net falls as Borders mulls sale

(Corrects paragraph 6 to say "below the $1.70 analysts expected" instead of "ahead of") (Adds outlook, Borders news)

ATLANTA, March 20 (Reuters) - U.S. bookseller Barnes & Noble Inc (BKS.N) on Thursday reported a lower quarterly profit as a deteriorating economy hurt sales, while chief rival Borders Group Inc BGP.N said it might sell itself.

Barnes & Noble, the world's largest specialty book retailer, boosted its quarterly dividend and said it expects same-store sales in the current first quarter to fall slightly.

Booksellers, like many other retailers, face challenging times as rising gasoline and food prices take more of consumers' discretionary income and fear of recession leads many to curb spending.

Borders earlier on Thursday suspended its quarterly dividend in a bid to conserve cash and said it was reviewing options including the sale of some or all of its businesses. Its shares rose before the bell.

Barnes & Noble had net income of $115 million, or $1.79 a diluted share, for the fiscal fourth-quarter ended Feb. 2, down 9 percent from $126.7 million, or $1.83 a share, a year earlier.

Excluding benefits from property insurance and litigation settlements, earnings were $1.69 a share, below the $1.70 analysts expected, according to Reuters Estimates.

Consolidated sales at Barnes & Noble fell about 2 percent to $1.85 billion from the year earlier, which included an extra week.

Barnes & Noble said its board raised its quarterly dividend to 25 cents a share from 15 cents a share, beginning with the June payout.

By contrast, Borders suspended its payout and said it was reviewing strategic moves that include selling some of all of its businesses. Borders also said that its largest shareholder, Pershing Square Capital Management, has agreed to loan it $42.5 million and will receive options to buy a 19.99 percent stake in the company for $7 a share.

Without the funding, Borders may have faced liquidity problems in the next few months, its chief executive said.

Barnes & Noble reiterated a full-year forecast made earlier this month calling for earnings of $1.70 to $1.90 a share, about flat with the year ago on an operating basis. For the first quarter, it forecast profit of 5 cents to 10 cents a share.

Analysts were expecting a loss of 1 cent a share for the first quarter and profit of $1.77 for the year, according to Reuters Estimates.

Borders shares were up 14 percent to $8.10 in electronic trading before the bell from their $7.10 close on Wednesday, while Barnes & Noble shares were up slightly to $28.09 from their $28 Wednesday close. (Reporting by Karen Jacobs, editing by Dave Zimmerman)