Sainsbury's Asda merger sends shockwaves across Britain's FTSE

* FTSE 100 up 0.1 pct

* Sainsbury (Amsterdam: SJ6.AS - news) 's registers record one-day gain

* Tesco (Frankfurt: 852647 - news) retreats

* WPP (Frankfurt: A1J2BZ - news) jumps on first-quarter results (Adds closing prices)

By Julien Ponthus

LONDON, April 30 (Reuters) - British shares closed slightly higher on Monday, but the planned merger between Sainsbury's and Asda, the UK arm of Walmart, sent shockwaves through British retail stocks as investors sought to adjust to a potentially game-changing overhaul of the industry.

The FTSE 100 closed 0.09 percent up at 7,509.30 points. All eyes, however, were on Sainsbury's shares. The supermarket chain surged by up to 20 percent and closed with a record one-day gain of 14.8 percent.

"Given that shorting retailers has been a huge trade over the past two years, news of a potential tie-up between Sainsbury, the UK’s second-biggest supermarket (chain) and seventh most shorted stock, and Walmart subsidiary Asda could see many caught on the wrong side of the bet in early trade on Monday," the broker explained.

Shorting a stock consists of borrowing shares and selling them in the hope of buying them later at a lower price and pocketing the difference.

Before the news broke over the weekend, data from Astec Analytics showed that more than 160 million Sainsbury's shares were out on loan, near the top of a 52-week range, as part of shorting bets on the price falling.

Sainsbury and Asda announced a 13.3 billion pound ($18.33 billion) deal that will create Britain's biggest supermarket group by market share, surpassing Tesco.

"Given its size, there is very little that Tesco will be able to contemplate as a response to today's news," Jefferies analysts wrote, adding that other players such as Morrisons could decide to enter a bidding war.

Tesco shares retreated by 0.9 percent while there were gaines for Morrisons (1.3 percent), Marks & Spencer (Frankfurt: 534418 - news) (0.4 percent) and online rival Ocado (1.9 percent).

Advertising group WPP also stood out on Monday as its shares climbed by 8.6 percent after the company reported better than expected first-quarter net sales and reiterated its full-year guidance in the first set of results to be published without founder Martin Sorrell.

"The company is planning to take a ‘fresh look’ at its operation, and that could include asset disposals," said CMC (Shanghai: 600327.SS - news) Markets analyst David Madden.

Shares (Berlin: DI6.BE - news) in British business support and construction services provider Interserve (Frankfurt: 860509 - news) fell sharply, down 12.3 percent after it reported a widening of full-year pretax losses and described last year's performance as "extremely poor".

Another loser was global miner Glencore (Frankfurt: 8GC.F - news) , down nearly 5 percent after subsidiaries in the Democratic Republic of Congo were served freezing orders for alleged unpaid royalties of nearly $3 billion by a company affiliated with Israeli billionaire Dan Gertler. (Reporting by Julien Ponthus Editing by Alison Williams and David Goodman)