* Surpasses Breeden Capital, which has 28.3 pct

* Shares lower

NEW YORK, July 29 (Reuters) - Private equity firm Golden Gate Capital has increased its stake in Zale Corp (ZLC.N) and become the jewelry store operator's largest shareholder.

Golden Gate, which took a 19.9 percent stake in Zale in May and lent the struggling retailer $150 million, exercised warrants to buy another 4.7 million shares, bringing its stake in Zale to 34.5 percent, according to a filing on Thursday with the U.S. Securities and Exchange Commission.

With that stake, Golden Gate has vaulted past Breeden Capital Management LLC, which owns 28.3 percent of Zale and is controlled by former U.S. SEC Chairman Richard Breeden, as Zale's largest investor, according to Thomson Reuters data.

Zale has suffered from several quarters of sales declines and lost market share to rivals such as Signet Jewelers Ltd (SIG.N). It spent the first part of 2010 looking for new investors before reaching its deal with Golden Gate. [ID:nN20211366].

But Zale's difficulties showed signs of easing during its third fiscal quarter as sales at stores open a year fell by 2.2 percent during the 3-month period that included Valentine's Day, a far more moderate decline than in earlier quarters.

Zale, the largest operator of jewelry stores in North America by store count, is expected to report quarterly earnings late next month.

The company runs chains such as Zales Jewelers in the United States and Peoples Jewellers in Canada.

Zale shares fell 1 percent to $1.80 at mid-afternoon on the New York Stock Exchange. (Reporting by Phil Wahba; Editing by Richard Chang)

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