UPDATE 1-Tuesday Morning sees narrower Q4 loss, shares jump

* Sees Q4 loss/shr $0.03-$0.05

* Q4 net sales drop 4 pct

* Sees FY09 EPS $0.01 to loss/shr $0.01

* Shares surge nearly 18 pct

July 13 (Reuters) - Tuesday Morning Corp (TUES.O) forecast a narrower fourth-quarter loss and said it continued to see improvement in customer traffic, sending the home accessories retailer's shares up nearly 18 percent.

"Our sales remain in line with our projections in light of the uncertainty surrounding current economic conditions", Chief Executive Kathleen Mason said in a statement.

The company, which will release its financial results on Aug. 25, forecast a loss of 3 cents a share to 5 cents a share for the fourth quarter, compared with a loss of 6 cents a share, a year ago.

The company said net sales in the quarter ended June 30 fell 4 percent to $188.7 million, while same-store sales dropped 6.6 percent.

One analyst was expecting a loss of 15 cents a share, before items on revenue of $179.0 million for the period according to Reuters Estimates.

Shares of the company were up 9 percent at $3.28 Monday morning on Nasdaq. They touched a high of $3.54 earlier in the session. (Reporting by Renju Jose in Bangalore; Editing by Aradhana Aravindan)