* Says test could yield 1.9 bln sterling of benefits
* Tesco says regulator's assumptions "far fetched"
* Competition Commission to give final view by Oct. 5
(Adds Asda comment, background, shares)
By Mark Potter
LONDON, July 16 (Reuters) - Britain's competition regulator defended plans for a new test for supermarket groups on Thursday, saying its proposals could yield 1.9 billion pounds ($3.1 billion) of benefits to consumers over 25 years.
The Competition Commission (CC) said in April 2008 that action was needed to improve competition among supermarkets in a number of local markets and proposed a new test for planning decisions on larger stores.
The test would apply to new or extended stores of over 1,000 square metres. It would examine the number of competitors within a 10-minute drive and aim to ensure no single retailer had more than 60 percent of grocery sales in that locality.
An appeal against the plan by Tesco, Britain's biggest retailer, was upheld by the Competition Appeal Tribunal (CAT) in March, which said the CC had not properly assessed the costs of the test and had failed to address its proportionality and effectiveness.
The CC said on Thursday it had conducting a detailed analysis which compared the benefits of increased competition against the costs from any delay between a dominant retailer's development being blocked and a rival taking its place.
"The analysis concluded that over the longer term, the benefits to consumers would outweigh any such initial costs," it said in a statement.
Using a net present value model to estimate the benefits and the costs, the CC concluded that the benefits arising from the test could total 1.9 billion pounds over 25 years.
Tesco, which has around a 30 percent share of Britain's grocery market, said the proposed test would not help consumers.
"We are concerned that the CC findings rely heavily on far-fetched assumptions which don't reflect the reality of the planning system," it said in a statement.
"The main effect of the proposed test will be to deter extensions which will prevent many older stores being updated to provide a better offer for customers up and down the country."
However Asda, Britain's second-biggest supermarket group with a market share of about 17 percent, backed the CC.
"Now more than ever, it is essential that consumers have the widest possible choice of supermarkets to do their shopping in. The Competition Test will do just that," it said in a statement.
The CC has asked for responses to its analysis by July 29 and plans to publish a final decision by Oct. 5.
A CC spokesman said the test would then be sent to the government for enactment and it was possible it could be introduced next year. However, it could also be subject to further legal challenges which could cause delays, he added.
At 1110 GMT, Tesco shares were up 0.5 percent at 365.9 pence, compared with a 0.2 percent rise on the UK's benchmark FTSE-100 index. Rival J Sainsbury was down 0.2 percent at 316.75 pence, while Wm Morrison Supermarkets was up 0.3 percent at 249.25 pence. (Editing by John Stonestreet and Rupert Winchester)