UPDATE 3-Citi renews Zale U.S. credit card deal

* Citi renews once-threatened Zale card deal

* 40 pct of Zale's U.S. sales on Citi-issued store cards

* New deal lowers Zale's minimum sales requirement

* Could help Citi sell $50 bln store-card assets - analyst

* Shares of Zale, Citi rise (Adds analyst, deal advisors, background on Citi's store-card portfolio, Zale's Canada cards; updates share prices)

By Maria Aspan and Phil Wahba

NEW YORK, Sept 24 (Reuters) - Citigroup Inc (C.N) has renewed and modified its U.S. private-label credit card partnership with Zale Corp (ZLC.N), safeguarding a relationship behind nearly half of the jeweler's U.S. sales.

The move also spruces up a portfolio that the bank is hoping to sell.

The bank said on Friday it would continue issuing store credit cards to the jeweler's customers for an initial five-year term, with automatic renewals for successive two-year terms, effective Oct. 1.

Citigroup had previously told Zale that it would not renew the agreement when it expired in March 2011 because of a shortfall in sales levels. The bank ended its credit card deal with Zale's Canadian stores in June.

Zale said that under the new agreement, its customers would only have to charge $315 million annually on its U.S. private-label cards, down from $600 million in net credit card sales. Roughly 40 percent of Zale's U.S. sales are made through its private-label credit cards.

The deal could help Citigroup in its efforts to sell off unwanted assets, analysts said. The bank has been struggling to sell almost $50 billion in store-card loans, including the portfolios for Zale, Home Depot Inc (HD.N), Macy's Inc (M.N), Sears Holdings Corp (SHLD.O) and other retailers. [ID:nN10229822]

Its long-term renewal of the Zale contract makes Citigroup's store-card portfolio more attractive to potential buyers, said Steven Jacowitz, a consultant for Auriemma Consulting Group who has managed credit card programs for Saks Inc (SKS.N) and Macy's upscale Bloomingdale's chain.

"The more locked-up the deals are within the asset pool (for sale) ... the more value the assets have. It's like money in the bank," he said.

STRUGGLING WITH SALES

Zale Chief Financial Officer Matt Appel said the deal ensures that there would be no disruption from having to switch credit card issuers ahead of the critical holiday season.

Citigroup agreed to forego a payment of about $396,000 that was due from Zale this week as part of the new agreement, the retailer said. Since June, Zale has paid Citigroup about $5.5 million in penalties for low sales volume on its private-label cards.

Zale has been contending with sharp sales declines for several years and has been losing market share to Kay Jewelers parent Signet Jewelers Ltd (SIG.N).

The credit card firm First Annapolis Consulting advised Zale on the deal. A Citigroup spokesman declined to name its advisor.

Separately on Thursday, Zale named interim Chief Executive Theo Killion to the job permanently. [ID:nN23246184]

Zale shares were up 3.0 percent at $2.05, while Citigroup rose 1.8 percent to $3.87 on the New York Stock Exchange early Friday afternoon. (Reporting by Maria Aspan and Phil Wahba; Editing by Gerald E. McCormick, Lisa Von Ahn and Richard Chang)