Thomson Reuters' plan to cancel its London Stock Exchange listing prompted a jump in its shares on Tuesday, but the rally was tempered by fears some large UK shareholders will have to cut or sell their stakes.

London-listed shares in the news and financial data publisher rose as much as 7.3 percent, closing in on its more expensive U.S.-listed stock , which will replace the British shares on a one-for-one basis.

Chief Executive Tom Glocer said he hoped UK shareholders would retain their investments after the reorganization, but major institutional investors are likely to sell many or all of their shares, given the funds they manage are UK focused.

Thomson Reuters said U.K. shareholders now constitute only 5 percent of the company's combined shareholder base.

Tom Glocer was good enough to come and see me yesterday afternoon together with the two other remaining institutional shareholders in London, and I am bitterly disappointed, said one top-10 institutional investor who wished to remain anonymous.

The fund manager said he had hoped the company would leave it five years before reaching a decision on its listings.

The dozy old UK institutions and sell-side analysts are only just realizing that Thomson Reuters is a much better company than they thought, he said. I think investors would have really come back to this one ... It's a real shame.

The company, formed in 2008 when Canadian data publishing company Thomson Corp bought British news and financial information provider Reuters, said the fragmentation in its share structure was deterring some investors.

It also stands to save millions of dollars in costs by exiting the London and Nasdaq exchanges, leaving it with two listings on the New York and Toronto exchanges .

Analysts at Numis Securities said they could see the benefits the simpler shareholder structure would bring but that they too were disappointed by the move.

We have been firm supporters of the group, which was one of our key picks in Media 2009, and are therefore greatly saddened to see the delisting, they wrote, adding that many UK institutional investors would likely have to sell their stakes.

Numis had a 'hold' rating on the London-listed stock prior to news of the reorganization but upgraded it to 'add' in order to reflect the discount relative to the U.S. shares.

At 8:08 a.m. EDT, London shares in Thomson Reuters, which also reconfirmed its full-year guidance, including revenue growth, were up 4.8 percent, down from a high of 1,750 pence earlier in the session.

That is still short of the 1,790 pence that Numis calculates it would have to reach to match valuations on the U.S. stock.

BRITISH DRAG

UBS analysts said any upside to the shares may be capped by the fact some institutional shareholders would have to sell stock and were less enthusiastic about the company's prospects, retaining a sell rating.

We continue to believe the fundamental value of the group overall remains too high, they wrote. We would expect to see evidence of deteriorating momentum near future.

Todd Bourell, a partner at hedge fund ValueAct Capital, which owns 12 million Thomson Reuters shares in London and is one of the company's largest shareholders, said Thomson Reuters' London listing had become problematic for the company.

The fact that the stock is irrationally undervalued in London is putting a drag on the value of the stock in New York and Toronto, Bourell said.

Canada's Thomson family is the largest shareholder of Thomson Reuters and holds a 55 percent voting interest.

The company also reconfirmed its full-year guidance including revenue growth.

The departure of Thomson Reuters is also a loss for the London Stock Exchange, which has been under pressure in the last few years as smaller rivals have eaten into its share of trading, and larger rivals diversify with transatlantic mergers.

Leaving the London exchange also marks a major move away from Reuters' European origins.

German-born Paul Julius Reuter opened his news and stock quote service in London in 1851, where it became a global news service. The group listed its shares in London in 1984.

(Writing by Paul Hoskins, additional reporting by Kate Holton, editing by Will Waterman)

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