UPDATE 1-Fortunoff bankruptcy dismissed by court

(Adds ruling's details, quotes, NEW YORK to dateline, byline)

By Sarah Coffey

NEW YORK, Sept 11 (Reuters) - A New York court granted struggling jewelry retailer Fortunoff permission on Thursday to dismiss its Chapter 11 bankruptcy case.

Fortunoff was purchased in March by NRDC Equity Partners, owner of the Lord & Taylor department store chain. It had asked the U.S. Bankruptcy Court for the Southern District of New York to dismiss its bankruptcy case after reaching an agreement with a group of its creditors.

"It is entirely reasonable under the circumstances to approve the stipulation and to dismiss the case," Judge James Peck told the court.

Fortunoff owed its junior secured lenders more than $19 million. Dismissing the bankruptcy case removes liens against Fortunoff's property, allowing those lenders access to the company's remaining assets.

In exchange, the junior lenders will pay $850,000 to Fortunoff's wind-down reserve, which will pay bankruptcy-related administrative expenses.

"The benefit was keeping 3,000 employees employed" and stores open, said Fortunoff attorney Frank Oswald.

Fortunoff also received approval to reject any remaining contracts or leases, and to deny all pending motions to allow claims.

NRDC paid $100 million for Fortunoff, which also sells home furnishings. The store struggled during a U.S. economic slowdown as consumers concentrated on paying for higher-priced gas and food and cut back on discretionary spending.

Fortunoff began as a neighborhood venture in Brooklyn in 1922. All its stores, including the flagship in Manhattan, and others in New Jersey, Long Island, Connecticut and Pennsylvania, remained open through the bankruptcy process. (Editing by Leslie Gevirtz)