Kay Jewelers Inc., the Alexandria-based national retailer that has been hurt by overexpansion, sagging sales and a heavy debt load, said yesterday it had agreed to a friendly takeover by Britain's largest jewelry retailer.

Ratners Group PLC will need at least $350 million to capture the 494-store Kay chain, which also operates stores in 32 states under the names J.B. Robinson, Marcus & Co. and Black, Starr & Frost.

Kay officials said it is likely that the company's Virginia headquarters, where 400 people are employed, will be closed and consolidated with Ratners's main U.S. offices in Ohio.

Kay's board of directors and other major stockholders, who own close to 35 percent of Kay's common stock, have approved the offer and recommended acceptance of the sale to the other shareholders, said Michael Lavington, Kay president and chief operating officer. The acquisition will be put to a vote at a special meeting for shareholders in early October.

The announcement of the agreement gave a jolt to Kay's stock, which has traded below $10 a share lately. It had its highest trading volume ever on the New York Stock Exchange yesterday with 1.5 million shares traded -- shooting up $3.50 to close at $14.37 1/2.

"Hopefully, now we can all drop the word 'troubled jeweler' when we are talking about Kay," said Lavington, who flew to London on the Concorde over the weekend to complete the sale already being planned by Kay Chairman Anthonie van Ekris.

If the acquisition works out, Ratners will become the second-largest jeweler in the United States after Zales, which is owned by Canada's Peoples Jewellers Ltd. The acquisition of Kay will double Ratners's presence to 967 stores in the United States. Ratners, with 1,200 stores in Britain, commands 50 percent of the market there.

Ratners, which has indicated that it aims to capture 10 percent of the U.S. retail jewelry market, entered the market here three years ago by acquiring Akron, Ohio-based Sterling Inc., then the fourth-largest U.S. chain, for $203 million. Last year, it acquired Seattle's Weisfield's for $55 million.

Its latest deal comes after a year of bad news for Kay, which had lost its luster after years of growth.

Kay reported a loss of $5.6 million for the first quarter, compared with a loss of $3.8 million for the same quarter in 1989, as revenue dropped to $77 million from $79 million. While it ranked as one of the Washington area's biggest retailers with $426.6 million in revenue last year, its profit nose-dived 98 percent to $196,000 from $11 million in 1988.

In March, Kay was sued by a number of shareholders who alleged that management understated its financial difficulties, charges the company has denied. Then in May, a group of banks pulled one-third of Kay's $86 million in short-term financing, the lifeblood of the jewelry business, where retailers lose money in every quarter except during the Christmas holiday season.

But just last week, Kay announced a new $80 million financing package from its banks and a $5 million infusion of capital by principal stockholders. The more stable financial picture helped convince Ratners to go ahead with the Kay sale, said Lavington.

The stock-swap takeover is valued at $17 a share for Kay's common stock -- with Ratners seeking to acquire at least 50 percent of the company's 12.4 million outstanding shares. Ratners also will pay off Kay's $235 million debt, made up mostly of bank loans and junk bonds.

Kay officials expect the deal to sail through, although there could be some resistance from holders of Kay bonds, which have been trading at less than 50 cents on the dollar lately. Ratners wants to acquire at least 50 percent of the $100 million in bonds, and is offering 75 cents on the dollar.

"There is going to be an arm-wrestling match over that price, and arguments over who is going to bear that loss, and owners could refuse to sell a single solitary bond," said Charles T. Akre Jr. of Akre Capital Management of Alexandria. "But for many who have seen the depressed prices, it might be seen as the best way out."

Other analysts also said the problems will be ironed out.

"Ratners is getting almost 500 stores in some of best malls in the U.S.," said Ken Gassman, of Wheat, First Securities Inc. in Richmond. "And Kay got a new injection of life."

The Kay announcement is the third time in recent weeks that an important Washington-based retailer has been in the news. Two weeks ago, the 85-year-old Garfinckel's department store chain sought bankruptcy protection in the District and began liquidating its nine-store operation. Last week, Peoples Drug Stores Inc., the area's largest drugstore chain, was sold by its Canadian owner to New York's Melville Corp. for $330 million.