Warner Music Group posted a narrower-than-expected quarterly loss on Thursday as growth of digital sales helped compensate for declining CD revenue, sending its shares up nearly 10 percent.

Top selling artists Michael Buble, Muse and Christophe Mae and cost controls helped reduce Warner's net loss for its fiscal second quarter to 17 cents a share, much smaller than analysts average forecast of a loss of 30 cents, according to Thomson Reuters I/B/E/S.

The headline loss was less than people were expecting and investors are now anticipating the second half of the fiscal year will feature a much better release schedule, said Tuna Amobi, analyst at Standard & Poor's.

Warner Music, which is the world's No. 3 music company based on recorded music sales, said revenue declined 1.3 percent to $662 mln. Analysts expected $663 million.

Sales of recorded music fell 0.9 percent from a year earlier, on weakness in the United States, Asia and Europe, partially offset by strength in Britain.

Digital recorded music sales rose 13.9 percent to $189 million, and accounted for nearly 35 percent of total recorded-music sales during the quarter.

Executives said digital music sales had benefited from international expansion of Apple Inc's iTunes Music Store, particularly through the increased availability of the iPhone in new markets.

The iTunes Music Store is the leading music retailer in the United States in all formats and accounts for more than 70 percent of digital music sales.

On a call with analysts, Warner Chief Executive Edgar Bronfman, who has at times clashed with Apple CEO Steve Jobs over issues such as variable pricing and copy protection, was complimentary on Apple's role in the music business, saying it had executed well.

He said Apple's growth had widened the range of competition for music retail from device makers to ISPs. That's probably good for the music industry when we see more competition coming into the market.

Bronfman added, No one's got rich betting against Steve Jobs and I certainly don't want to be the first to do it.

Revenue at Warner/Chappell music publishing, the unit that manages songwriters and song licensing, declined 1.5 percent to $134 million hurt by the decline in CD sales.

Warner Music has been widely speculated as a potential bidder for assets of smaller London-based rival EMI Group, home of artists like the Beatles and Coldplay. Terra Firma, EMI's private equity owner, is currently seeking financing to ensure it retains ownership in the face of a mounting debt load.

Bronfman declined to comment on whether Warner would make a move for EMI.

Shares of Warner Music were up 64 cents at $7.24 in mid-day trading. They have risen about 28 percent this year.

(Reporting by Yinka Adegoke and Franklin Paul; Editing by Derek Caney and Steve Orlofsky)

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