By Karen Jacobs and Emily Chasan

Circuit City is one of the largest retail bankruptcies seen in the current U.S. recession and its demise paves the way for larger rival Best Buy Inc to boost sales and gain clout with suppliers as the leading specialty electronics retailer.

Circuit City, the No. 2 retail player in U.S. electronics, sought approval from the U.S. Bankruptcy Court in Richmond, Virginia, on Friday to begin liquidation.

"Regrettably for the more than 30,000 employees of Circuit City and our loyal customers, we were unable to reach an agreement with our creditors and lenders to structure a going-concern transaction ... and so this is the only possible path for our company," Vice Chairman James Marcum said.

Circuit City had indications of interest from private equity firm Golden Gate Capital and Mexican retail and media tycoon Ricardo Salinas Pliego, who owns more than 28 percent of the company, one of its lawyers said in court.

Shares of the chain fell 74 percent to 4 cents.

The company does not expect any value will remain from the bankruptcy estate for common shareholders. It aims to begin store closings on Saturday and has up to $1.3 billion in inventory to liquidate.

Circuit City filed for Chapter 11 protection in November, citing a deteriorating cash position and tighter terms from vendors. It recently closed 155 stores, and now has about 567 U.S. stores.

A group including Great American Group, Hudson Capital Partners, SB Capital Group and Tiger Capital Group won the auction to run Circuit City's liquidation.

A spokesman for Salinas was not immediately available for comment on the Circuit City announcement.

BEST BUY'S GAIN

Shares of Best Buy, which analysts have said stood to gain longer-term if Circuit City went out of business, were up 6.3 percent on Friday.

Anthony Chukumba, an analyst with FTN Midwest Securities, said although the demise of Circuit City could hurt Best Buy in the next few months, the Minneapolis retailer stands to gain a significant portion of sales in the long run.

He estimated that should Best Buy gain 30 percent of Circuit City store sales, that could add 50 cents in annual earnings per share over its next fiscal year.

"We think they'll get better pricing, more access to exclusive merchandise, better terms," Chukumba added.

Circuit City, founded in 1949 when Samuel Wurtzel opened Ward's, Richmond's first retail television store, stumbled as rising unemployment and tighter credit led consumers to cut back sharply on purchases beyond food and other staples.

Restructuring experts are expecting a wave of store closures and potential bankruptcies due to the recession.

Earlier this week, regional department store chain Gottschalks Inc filed for bankruptcy reorganization, and Goody's, a clothing retailer, said it plans to liquidate remaining stores in a return to Chapter 11.

The bankruptcy case is Circuit City Stores Inc, U.S. Bankruptcy Court, Eastern District of Virginia, No. 08-35653.

(Additional reporting by Cyntia Barrera Diaz in Mexico City, editing by Matthew Lewis)