Feb 23 - Jewelry retailer Zale Corp reported a higher quarterly profit as middle-class shoppers spent more on jewelry for the holidays, sending the company's shares up more than 12 percent.

Sales at established stores rose 7.9 percent for the quarter that ended in January, a sharp improvement over the 11.2 percent drop in the year-earlier period.

The momentum is holding up so far in the current quarter. Chief Financial Officer Matt Appel told investors on a call that same-store sales over Valentine's Day, the third most important occasion for jewelers, rose 12 percent.

Zale shares rose 53 cents to $4.79 in morning trading.

Gold, silver and diamond costs have risen substantially in the last year, and Zale said it will have no choice but to pass on those increases, at least partly, to customers.

"It will be necessary to accept additional selective price increases this spring," Appel said.

In late 2009, Zale faced a serious liquidity crisis and canceled orders with vendors just before the holiday season, accelerating a market share loss to its most direct U.S. competitor, Signet Jewelers Ltd's Kay Jewelers chain.

Chief Executive Theo Killion said in a statement that the latest results showed turnaround efforts were taking hold.

Zale hired a turnaround adviser last year to help it find new investors. In May, private equity firm Golden Gate Capital lent the company $150 million, allowing it to mend relations with suppliers and buy the jewelry it wants to sell, resume full-fledged advertising campaigns and hire more staff in its stores over the holidays.

Still, Zale faces a struggle to recover market share losses.

Kay Jewelers, which competes with Zale in the "middle" jewelry market between discounters like Wal-Mart Stores Inc and high-end jeweler Tiffany & Co, said same-store sales in November and December rose 9.8 percent, outpacing Zale's 8.5 percent rise.

Zale, whose chains include Zales in the United States and Peoples Jewellers in Canada, said revenue rose 7.6 percent for for the holiday quarter -- the company's fiscal second quarter ended Jan. 31 -- to $626.4 million.

Net income jumped to $27.2 million, or 73 cents per share, four times the year-earlier $6.7 million, or 21 cents per share.

Zale, the largest North American jeweler by store count, operates about 1,870 locations, include stores, outlets and its Piercing Pagoda chain of mall kiosks.

(Reporting by Phil Wahba, editing by Dave Zimmerman and John Wallace)