* To exit leased department store business

* To cut some administrative jobs

* To focus solely on specialty jewelry stores

* To close 40 unprofitable specialty stores (Adds restructuring details, company comment, paragraph 7)

By Mihir Dalal

BANGALORE, Feb 26 (Reuters) - Jeweler Finlay Enterprises (FNLY.OB), hurt by liquidity woes, is shutting its department store outlets over the near-term to concentrate on specialty jewelry stores, 40 of which it also earmarked for closure.

"Given the decline in our department store business over the past five years coupled with the strenuous economic conditions...we view our strategic plan to exit this business segment as a necessary measure," Chief Executive Arthur Reiner said.

Shares of the company, which also owns Bailey Banks & Biddle, rose 67 percent in afternoon trading on over-the-counter bulletin board. Finlay has seen its shares lose almost 97 percent of their value in the last year.

Finlay, which operates counters at department store chains like Macy's Inc (M.N), said it will reduce its cost structure to levels appropriate to support its specialty jewelry store business.

It plans to do this through job cuts in its administrative functions, mainly at its New York headquarters, besides sales positions at the affected locations.

The company had 674 locations at the end of January.

Finlay also amended its revolving credit facility to reduce available credit to $300 million and changing the termination date to Feb. 25, 2010.

The company has been working with restructuring advisers and legal counsel for months, according to people familiar with the matter. A Finlay spokeswoman would not immediately elaborate.

In December, the company warned that the U.S. recession had hurt its liquidity position and it might have to curtail its operations or pursue other options if the situation did not improve.

Adding to Finlay's worries, Macy's did not renew license agreements that expired on Jan. 31 at 93 stores. Finlay generated 52 percent of its total sales from the counters it operates at that chain.

Lord & Taylor also did not renew license agreements with Finlay beyond Jan. 31. after the department store chain's owner, NRDC Equity Partners, acquired jewelry retailer Fortunoff out of bankruptcy last year.

However, as consumer spending declined, Fortunoff sought court approval to sell its assets earlier in February. This week, a federal judge approved a sale of Fortunoff's assets to a group of seven liquidators.

Jewelry retailers, including Zale Corp (ZLC.N), Signet Jewelers (SIG.N) and even upscale Tiffany & Co (TIF.N) have fallen victim as cash-strapped consumers cut back spending on non-essential items. (Reporting by Mihir Dalal in Bangalore; Additional reporting by Emily Chasan and Aarthi Sivaraman; Editing by Anthony Kurian, Jarshad Kakkrakandy, Leslie Gevirtz)