UPDATE 3-Sainsbury's CEO King to stand down in July

* Justin King to step down as CEO at July 9 AGM

* Commercial director Mike Coupe to succeed King

* Shares down 1.7 pct

* Coupe says it's 'business as usual'

* King says has not lined up next job (Adds detail, executive, analyst comments, updates shares)

By James Davey

LONDON, Jan 29 (Reuters) - Justin King will step down aschief executive of British grocer J Sainsbury in Julyafter a decade at the helm, with the company opting forcontinuity by choosing commercial director Mike Coupe as hissuccessor.

Coupe, 53, had been favourite to succeed the highly regardedKing to lead a company battling with Wal-Mart Stores' Asda to be Britain's No. 2 player behind Tesco.

King overhauled the 145-year-old retailer to achieve a 60percent increase in sales and a near-tripling of earnings.

While no major surprise, his exit raises the question of howhis successor will defend profits in the face of stagnatinghousehold incomes and a two-pronged challenge from discountgrocers Aldi and Lidl and upmarket foodretailers Waitrose and Marks & Spencer.

"Coupe represents continuity for Sainsbury's, something thatmay reassure investors who will naturally be a littledisconcerted by change," said Shore Capital analyst Clive Black,who maintained a 'buy' recommendation on Sainsbury shares.

The stock was down 3 percent at 346 pence at 1420 GMT afterbriefly falling by as much as 5.8 percent. It has gained 8percent in the past year, while Tesco has dropped 10 percent inthe same period as it suffered a run of poor results.

"It's very much business as usual but equally we have toaccept that the dynamics of the market are changing and, as welook forward, we may need to change some things," said Coupe.

Sainsbury said King would leave after its annual shareholdermeeting on July 9.

Chairman David Tyler praised King as an "inspirationalleader" who effected one of the most striking turnarounds inrecent British business history.

"In 2004, when he joined, Sainsbury's was close to being onits knees, its shelves were often unstocked, morale was at rockbottom, market share was falling and profits were whollyinadequate," he said.

VETERANS

As well as taking Sainsbury's to a decade-high grocerymarket share of 17 percent, King built new businesses inclothing and general merchandise, powerful convenience andonline operations and took the firm into financial services.

"King's decision isn't a complete bolt from the blue. It hasbeen rumoured a bit in the last couple of years. His successorhas big shoes to fill," one top 40 shareholder in Sainsbury'stold Reuters on condition of anonymity.

A former executive of Big Food Group, Iceland, Asda andTesco, Coupe, like King, is a 10-year Sainsbury's veteran. Hewill receive an annual salary of 900,000 pounds ($1.5 million)as well as a beefed-up long-term incentives package.

During King's tenure, the shares rose over 30 percent,compared with a rise of around 50 percent in Britain's benchmarkFTSE 100 index. They peaked in 2007 when there was speculationregarding a possible Qatari takeover.

Sainsbury's has resisted the pressure on the sector betterthan its big four rivals and earlier this month posted a 36thstraight quarter of underlying sales growth.

It reported its "best Christmas ever", but warned thatconsumers were likely to tighten their belts in the early partof 2014 and cut its sales growth forecast accordingly.

GOOD TIMING

There had been speculation that King could depart for over ayear, with media reports linking him with a role in Formula Onemotor racing.

"Mike's served under Justin for a long time, hasn't got thecharisma of Justin ... but I think they see him as a solidchoice in a pretty challenging time for the industry," saidindependent retail analyst Nick Bubb.

"Frankly, supermarket retailing is getting a bit tougher andit's understandable he (King) wants to go out on a high note,"said Bubb.

King said the time was right to depart and the decision wasentirely his own. He has not lined up another job but felt hewas young enough, at 52, to do another big one, though a"non-compete" deal rules him out of taking a role with any rivalgrocery chain for 12 months.

"There's plenty of energy left in the old dog yet," he said."I'm sure the right opportunity will come along and I'll knowwhat it is when I see it." ($1 = 0.6030 British pounds) (Additional reporting by Chris Vellacott, Sarah Young and KateHolton; Editing by Paul Sandle and Tom Pfeiffer)