LONDON (Reuters) - Food retailer Morrison PLC has agreed to a new 3-billion-pound ($5.2 billion) bid for rival Safeway Monday, intensifying competition behind market leader Tesco in the U.K.'s competitive supermarket sector.

The offer of 283 pence a share, including 60p in cash, takes the long-running takeover battle for Safeway into its final stages, nearly a year after Morrison made its first all-share bid of £2.9 billion in January.

Morrison shares rallied as much as four percent to a 14 month high of 232 pence, slightly increasing the value of its offer and helping Safeway shares up to as high as 293-3/4p.

"It's an even better deal for Morrison than before," said Mark Hughes, an industry analyst at stockbrokers Numis Securities, noting that Morrison's previous all-share offer would have been worth 294p per share at current prices.

"The Competition Commission has effectively stopped Safeway from getting the best deal," he said.

Morrison, currently the UK's No. 5 food retailer, was cleared by British regulators to bid for No. 4 Safeway in September, on condition it sold 52 of its 480 stores. The same ruling also blocked the UK's three biggest supermarket groups, Tesco PLC, Wal-Mart's (WMT: Research, Estimates) Asda and J Sainsbury PLC.

Safeway had been coveted by all of its big supermarket rivals, which were looking for ways to expand in a country with tough planning laws and a shortage of sites.

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"I think that Morrison's got it (Safeway) at an absolute steal," said Tim Attenborough, an analyst at BNP Paribas.

Numis Securities' Hughes cut his price target on Safeway shares to 300p from 340p, but thought there was still a chance a rival bidder could emerge, probably a private equity firm.

Sources close to the situation told Reuters Thursday that Asda had approached Safeway with an offer to buy 70 of its stores for close to £2 billion.

However, family-run Morrison was confident competition regulators would block such a move, and was optimistic of completing its deal by around March 2004.

"Putting Morrison and Safeway together will create a powerful national retailer able to challenge the other three majors," Morrison Executive Chairman Ken Morrison told reporters, calling the deal a "transforming step."

Morrison, whose stores mimic the covered markets of its native Yorkshire, said it was offering one of its own shares for each Safeway share, compared with its previous proposal of 1.32 Morrison shares for each Safeway share.

It is also offering £636 million in cash, funded from the expected proceeds of selling 52 Safeway stores.

Ken Morrison said Safeway had already received approaches for the sites and was optimistic for a quick sale.