UPDATE 1-Microsoft, Barnes & Noble team up

* Microsoft to invest in B&N's digital, college units

* Deal values businesses at $1.7 bln

* Microsoft will own 17.6 pct of new business

* Barnes & Noble shares up 79 pct; Microsoft up 0.7 pct

April 30 (Reuters) - Microsoft Corp will invest $300 million in Barnes & Noble Inc's digital and college businesses, valuing them at $1.7 billion. Shares of Barnes & Noble jumped 79 percent.

Microsoft will get a 17.6 percent stake in the new unit, while Barnes & Noble will own about 82.4 percent, the companies said in a statement on Monday.

The business, whose name has not yet been decided, will have an ongoing relationship with Barnes & Noble's retail stores.

Barnes & Noble, the No. 1 U.S. bookstore chain, said in January that it might spin off its digital business, which includes its Nook e-reader. The companies will introduce an application for the Nook on Windows 8, t he upcoming version of Microsoft's operating system.

Barnes & Noble is investing heavily to develop its popular Nook devices and the e-books sales they generate as readers move away from traditional books.

Barnes & Noble and Microsoft have settled their patent litigation, the companies said.

Shares of Barnes & Noble were up 79 percent at $24.50 in premarket trading. The company was valued at just above $823 million at Friday's close.

Microsoft shares rose 0.7 percent to $32.19.