UPDATE 2-Bankrupt Finlay to sell assets to Gordon Brothers

(Recasts, adds information on valuation, moves dateline to New York)

* Gordon Brothers wins auction to buy assets

* Expects transaction to be completed by Feb. 28, 2010

NEW YORK, Sept 24 - Bankrupt jeweler Finlay Enterprises Inc said on Thursday 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.

Finlay, which filed for bankruptcy protection in early August citing the tough economy and difficulties with vendors, said Gordon Brothers had the highest bid.

Finlay did not disclose the size of the bid and a company spokeswoman was not immediately available for comment.

The company guaranteed to pay Finlay a minimum of 85.75 percent on an inventory value of $116 million, according to a source involved in the auction. That is up from an original offer before the auction began of 75 percent of the inventory value, the source said.

The company expects to also receive additional funds from Gordon based on other fees and inventory, the source said.

Gordon Brothers will conduct store closing sales at all of Finlay's retail stores and two distribution centers, Finlay said in a statement.

The jeweler said previously that it had 182 stores, including 67 Bailey Banks&Biddle, 34 Carlyle and four Congress shops, and 77 licensed departments with Bon-Ton Stores Inc.

The deal must still be approved by the U.S. Bankruptcy Court for the Southern District of New York, which is holding a hearing on Sept. 25. If approved, Finlay expects to complete the transaction by Feb. 28, 2010.