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UPDATE 2-Barnes & Noble to spin off Nook business, focus on stores

* Expects to complete separation by March 2015

* Expects full-year bookstore sales to drop in low-single digits

* Shares rise as much as 10.6 pct

(Adds comment from CEO, analysts; details from conference call; updates shares)

June 25 (Reuters) - Barnes & Noble Inc said it would spin off its Nook tablets and college books business, letting go of the loss-making Nook e-reader business to focus on its book stores.

The long-awaited decision sent Barnes & Noble's shares up as much as 10.6 percent to a year high as the company gave up trying to keep pace with deep-pocketed rivals such as Amazon.com Inc, Apple Inc and Google Inc.

The unit to be spun off, Nook Media, consists of the company's digital content, e-readers and tablets and college bookstores. It is 17 percent-owned by Microsoft Corp, while Pearson Plc owns 5 percent.

Barnes & Noble did not say how it would split off the Nook business, which has lost hundreds of millions of dollars over the past five years.

The remaining bookstore business also faces pressure from the likes of Amazon and Barnes & Noble plans more store closures but Maxim Group analyst John Tinker said there was a viable, if shrinking, business there.

"The retail store is an ice cube, it's just that the ice cube is melting very slowly, surprisingly slowly," he said.

Barnes & Noble Chief Executive Michael Huseby declined to comment on whether the Nook business would be sold but said talks were planned with Microsoft and Pearson.

"We expect to have further discussions with them that are positive," Huseby told Reuters.

Barnes & Noble said on Wednesday it more than halved its quarterly loss after it curbed Nook production last year and cut marketing for the gadget.

VALUE IN NOOK

Barnes & Noble said this month it would develop a tablet with Samsung Electronics Co Ltd and an analyst said there seemed to be some value in the business.

"The board's decision to spin off Nook suggests confidence in the sustainability of the stand alone Nook business," Stifel analysts wrote in a note.

Investment firm G Asset Management said in February it offered to buy a 51 percent stake in either Barnes & Noble or in the Nook digital business, valuing the unit at about $300 million.

The firm was not immediately available for comment on Wednesday.

Barnes & Noble said it plans to complete the separation by March 2015.

The company said it would close about 25 retail stores in the current year and not open any new ones.

Barnes & Noble said it expects retail comparable bookstore sales and core comparable bookstore sales, which exclude sales of Nook products, to decline in the low-single digits in the full year.

Barnes & Noble's net loss narrowed to $36.7 million, or 72 cents per share, in the quarter ended May 3, while revenue rose 3 percent to $1.32 billion.

Shares were trading up 5 percent at $21.63 in afternoon trading on the New York Stock Exchange.

(Additional reporting by Ramkumar Iyer in Bangalore; Editing by Don Sebastian and Saumyadeb Chakrabarty)