By Jonathan Stempel and Grant McCool

(Reuters) - Reebok International Ltd agreed to settle a lawsuit by rival Nike Inc, and will stop selling New York Jets football apparel with the name of the team's popular new quarterback, Tim Tebow.

According to settlement papers made public on Tuesday, Reebok will halt the sale of Jets-related apparel bearing the Tebow name that was distributed last month, and offer to buy apparel already shipped to retailers.

Nike sued Reebok on March 27, six days after the Jets' trade for Tebow with the Denver Broncos sparked a rush to buy green Jets jerseys and T-shirts with Tebow's name.

In its complaint, Nike claimed that Reebok had no agreement to sell Tebow-related Jets products, and that a Reebok merchandising license with the NFL players union had expired at the end of February.

Reebok, a unit of Germany's Adidas AG, countered that the union's licensing arm allowed it to use names and numbers of players changing teams in March.

Nike, Reebok and both companies' lawyers did not immediately respond to requests for comment.

Last Wednesday, U.S. District Judge Kevin Castel in Manhattan converted a temporary order blocking Reebok's sale of the apparel into a temporary injunction, saying "money damages would not make Nike whole."

In court papers, Reebok had said it had made 6,000 jerseys and 25,000 T-shirts bearing Tebow's name and number, as well as the logos of Jets and the National Football League. It said only about 400 jerseys had Reebok's name or logo.

Tebow's No. 15 Broncos uniform had been among the NFL's top-selling jerseys before the trade.

A January poll by Walt Disney Co's ESPN rated the 2007 Heisman Trophy winner, known for praying on the football field, as the No. 1 favorite active professional athlete in the United States.

On April 1, Nike began an exclusive five-year contract to sell apparel for all 32 NFL teams. The apparel was scheduled to be available by late April.

"It is a minor hardship for New York Jets and Tim Tebow fans to have to wait to get their jerseys," Castel said last week.

The case is Nike Inc et al v Reebok International Ltd, U.S. District Court, Southern District of New York, No. 12-02275.

(Reporting By Jonathan Stempel and Grant McCool in New York; Additional reporting by Caroline Humer; Editing by Gary Hill and Carol Bishopric)