UPDATE 1-Bon-Ton to operate jewelry departments at its stores

* To take over jewelry department operations from Finlay * Says to start operating 86 departments in late October

Sept 29 (Reuters) - Apparel and home-furnishings retailer Bon-Ton Stores Inc (BONT.O) said it will start operating jewelry departments, earlier licensed to bankrupt jeweler Finlay Fine Jewelry Corp, at 86 of its nameplate stores in late October.

"We believe internally operating and building this destination business will provide increased sales and profits as well as drive traffic into our stores," Chief Executive Bud Bergren said in a statement.

Bon-Ton expects to have a full assortment of merchandise in its jewelry departments for the 2009 holiday selling season.

The company, which operates the Elder-Beerman, Boston Store and Carson Pirie Scott chains, said former Finlay store associates in good standing will be offered equivalent level positions in these stores.

Finlay Enterprises Inc FNLYQ.OB earlier operated 77 licensed jewelry departments with Bon-Ton and recently said Gordon Brothers Retail Partners LLC won an auction to buy its assets in bankruptcy court and will handle closing sales at all its retail stores. [ID:nN24461478]

Shares of Bon-Ton were unchanged at $7.59 in midday trade Tuesday on Nasdaq. (Reporting by Viraj Nair in Bangalore; Editing by Unnikrishnan Nair)