Major Zale investor has dumped most shares

* Franklin Resources has 4.7 pct stake, down from 16.4 pct

* Shares up 14 percent

NEW YORK, March 10 (Reuters) - Franklin Resources Inc, one of Zale Corp's (ZLC.N) largest shareholders, has shed most of its stake in the troubled jewelry chain since the end of 2009, according to a regulatory filing.

Franklin Resources owned 4.7 percent of Zale's shares as of Feb. 28, according to a filing on Tuesday with the U.S. Securities and Exchange Commission, down from an earlier stake of 16.4 percent as of Dec. 31, 2009.

That had made it Zale's second-largest shareholder behind Breeden Capital Management LLC, which owns 28.3 percent of the company's shares.

The Dallas-based jewelry chain, the largest in North America by store count, has grappled for more than two years with sliding sales and cash reserves. Last month, Zale hired turnaround expert Peter J. Solomon Co to help it find investors.

Zale operates the Zales Jewelers chain in the United States and the Peoples Jewellers in Canada.

The dates when Franklin Resources sold the shares were not disclosed in the filing, and portfolio managers at the investment firm could not be reached to explain the reason for the stock sales.

Frankin Resources still owns 1.5 million shares, down 71 percent from the 5.3 million shares it owned as of Dec. 31.

Zale shares were up 42 cents, or 14.43 percent to $3.33 on the New York Stock Exchange.

Its shares have rallied since Zale reported better-than-expected profits two weeks ago. They are down 60.9 percent from yearly highs in September. (Reporting by Phil Wahba. Editing by Robert MacMillan)