UPDATE 2-Gap to open in China in 2010, will restart TV ads

* Gap to launch first store in China next year

* Gap brand to return to television in November

* Will expand outlet stores internationally

* Will launch Web businesses in Canada and UK

* Shares down 0.4 pct (Adds more details)

By Alexandria Sage

SAN FRANCISCO, Oct 15 (Reuters) - U.S. clothing chain Gap Inc (GPS.N) plans to open its first store in China next year as it seeks new international opportunities to counteract a protracted domestic sales slump at its main brand.

The Gap brand will also begin television advertising next month after an absence of two years, the company said on Thursday ahead of a presentation to investors.

Gap Chief Executive Glenn Murphy told investors that the decision to open a store in China came after several trips to Shanghai and Beijing during which he noticed European brands like H&M (HMb.ST) and Zara (ITX.MC) and Japan's Uniqlo (9983.T), but no significant presence by a U.S. apparel brand.

Gap said the exact location of the store has not yet been finalized.

The company, one of the world's largest apparel retailers and owner of the Gap, Old Navy and Banana Republic chains, as well as the Piper Lime and Athleta online businesses, has cut costs and streamlined its stores over the past two years.

The company said on Thursday that it plans to reduce its total store base square footage by 10 percent over the next five years.

Those efforts have boosted margins but have had little effect on revenue.

The U.S. recession exacerbated a multiyear sales decline at the company's two largest brands, Old Navy and Gap, and sent sales falling at its more upscale Banana Republic chain.

But recent signs of a turnaround at Old Navy -- September same-store sales there rose 13 percent compared with a 24 percent decline a year earlier -- have calmed investors, who are nevertheless waiting for a similar turn at Gap stores.

Signs of that turn may come in November, Murphy said, when Gap launches television commercials. The company's only recent television ads have been at Old Navy, which is focusing on fun but practical styles that offer value to families.

Chief Financial Officer Sabrina Simmons said the company's marketing budget for the third quarter will be $25 million higher than a year earlier, while spending for the fourth quarter will be about $45 million higher.

INTERNATIONAL EXPANSION

A main focus for Gap for 2009 and beyond is to increase investments to regain market share and expand internationally, Murphy said. The company's investor day is taking place in New York City.

Gap operates more than 3,100 stores in the United States, the United Kingdom, Ireland, Canada, Japan and France and has recently signed franchise agreements in international markets such as Asia, the Middle East and Latin America.

Murphy noted that the company has no stores in some large European markets, such as Italy, Germany and Spain.

Gap plans to expand its outlet stores abroad and launch online businesses in Canada and the United Kingdom in 2010. It also said it is exploring online opportunities in Japan.

At the Old Navy chain, a new smaller but easier-to-shop store format will be in 50 different stores by year's end. Still, Murphy said it would not make sense to expand the Old Navy brand beyond North America right now.

Executives acknowledged that the clothing at Banana Republic had become too work-focused and said future designs would provide more variety for leisure as well as career.

At Gap -- where skeptical analysts viewed a high-profile jeans campaign as a buzz-creator that failed to significantly help sales -- the company said it would tackle other key categories like khakis and pants through 2010.

Remodeling of stores at the chain will continue, the company said.

Gap, which began in San Francisco in 1969, has seen its market share erode as rivals from big-box retailers to specialty apparel chains have crowded the casual apparel arena.

Gap shares fell 9 cents to $22.88. (Additional reporting by Martinne Geller in New York; Editing by Gerald E. McCormick and Dave Zimmerman)