* Thomas Cook to own 70 percent of new company, Co-Op 30 pct
* Sees savings of 35 million sterling a year
* Thomas Cook CEO says some jobs to go
* Shares up 4 pct (Adds details)
By Victoria Bryan and Rhys Jones
LONDON, Oct 8 (Reuters) - Britain's Thomas Cook is merging its high street travel and foreign exchange business with the Co-operative Group's operation in a cost-cutting drive ahead of an expected period of weaker consumer spending.
The deal to create Britain's largest retail travel network sent Thomas Cook shares up 4 percent in early trade to 186.9 pence.
"This is possibly the last consolidation opportunity in this sector," Thomas Cook Chief Executive Manny Fontenla-Novoa told reporters on a conference call.
"This is a merger and no cash is changing hands, which makes it a very attractive deal for both parties."
Thomas Cook, which announced a cost-cutting programme last week, said the deal will result in savings and benefits of over 35 million pounds ($55.8 million) per year, plus a further 10 million pound boost through increased product sales.
Fontenla-Novoa said the move should put Thomas Cook, which will hold a majority stake in the combined business, in a much stronger position should market conditions remain weak.
Consumer confidence is waning in Britain as the government hikes taxes and cuts public spending to rein in record debts.
The new company, which does not include Thomas Cook's online business or any of its UK tour operators, will have over 1,200 shops and will be the second largest foreign exchange player in the UK behind the Post Office.
The savings target will be achieved at a cost of 30 million pounds and will involve some shop closures and the combining of IT systems and back-office functions.
"There will inevitably be some job losses but we're going to keep those to a minimum," said Fontenla-Novoa.
"Both brands will be retained and that's why we don't think there will be many store closures because both brands coexist on the high street next to each other."
Shore Capital analyst Greg Johnson said he expects further consolidation across most source networks for Thomas Cook and larger rival TUI Travel.
"The only note of caution is that the move increases the group's exposure to high-cost high street retail, at the expense of the fast-growing Internet distribution," he wrote in a note.
Thomas Cook will own 70 percent of the new company, whose results will be fully consolidated within its accounts and which will add to its earnings from the first full-year of operation, before integration costs.
Competition approval is expected in early December.
Fontenla-Novoa will be chairman of the new group and Thomas Cook's UK head, Ian Derbyshire, will serve as CEO.
The Co-Operative, the UK's largest mutual retailer with 5.5 million members, will appoint two directors to the board.
The Midlands Co-Operative, the second-largest in the country, will also join the new company at a later date, bringing in a further 103 shops. It will hold a 3.5 percent stake, to be taken from the Thomas Cook share of the business. (Additional reporting by James Davey; Editing by Jon Loades-Carter and David Cowell) ($1=.6274 Pound)