The 88-year-old retailer, which runs Waterstone's bookstores and music shops under its own name, said on Wednesday it had agreed a joint venture with MAMA Group Plc that will own 11 of the British music and marketing firm's venues.

HMV reported a 0.5 per cent rise in underlying sales for the five weeks to Jan 3 and said it was on track to meet full-year profit expectations.

It also said it had agreed to buy 14 stores from the administrators of stricken rival Zavvi and that it would pay for the deal, as well as the creation of the joint venture, by placing up to 20 million shares, or 5 per cent of the total.

At Wednesday's closing price of 127.5 per cent, that would raise around 25.5 million pounds (S$55.6 million).

'Music is very much part of our DNA, and by extending the HMV brand into the growing live music and entertainment market, our customers will be able as never before to access and experience music in all of its forms via HMV,' Chief Executive Simon Fox said in a statement.

HMV is in the midst of a three-year turnaround plan aimed at meeting the challenge of competition from Internet retailers and supermarkets, as well as the rise of music and film downloads.

Amid a steep downturn in consumer spending, rivals Woolworths and Zavvi have failed to cope, with both groups entering administration, a form of creditor protection.

'As you're seeing in these tougher times, stronger players are emerging and weaker players are falling away,' Fox told reporters, adding HMV would do its best to capture the market shares of its former rivals, which accounted for about 20 percent of CD sales and 15 per cent of DVD sales.

HMV said the live music market was worth around 1 billion pounds a year and had shown strong growth in recent years.

MAMA management will run the joint venture, while HMV will seek to benefit by marketing tickets and merchandise to its music customers and vice versa.

HMV said it would invest an initial 18.25 million pounds in cash for its stake, which could rise or fall by 3.28 million pounds depending on the venture's performance in the year ending October 2009.

It will also pay 700,000 pounds for nine former Zavvi stores in the UK and five in Ireland. Including rebranding and refurbishment, the cost of this deal, which HMV said would safeguard 270 jobs, would be around 2 million pounds, it said.

Sales at HMV UK and Ireland shops open at least a year rose 3 per cent in the five weeks to Jan. 3, while Waterstone's sales were down 2 per cent on the same basis and underlying sales at HMV's international businesses were down 6.6 percent.

Top sellers included 'Mamma Mia' in DVDs, Take That in music, 'Call of Duty 5' in computer games and J.K. Rowling's 'The Tales of Beedle the Bard' in books.

HMV said trading conditions remained challenging but that it expected to meet full-year profit forecasts, which are pitched around 58 million pounds.

'The HMV Christmas trading update looks less bad than feared at first sight and the new strategic initiative (entering the live music market) looks sensible,' said Pali International analyst Nick Bubb.

HMV said major shareholders had indicated strong support for the planned share placing, which is being carried out by an accelerated bookbuild by Citigroup and Nomura.

HMV shares have outperformed the UK's general retail index by 9 per cent over the past year. -- REUTERS