(Adds U.S. Justice Department reaction, paragraph 7)

NEW YORK, April 30 (Reuters) - Merchants unhappy with the fees American Express Co charges them may steer customers toward less expensive cards without fearing retaliation from the credit card company, a federal judge ruled on Thursday.

Judge Nicholas Garaufis in Brooklyn federal court said American Express may not stop restaurants and stores, for instance, from offering discounts, rebates or other incentives for using lower-fee cards. Merchants may also tell customers about the relative costs of using particular cards, the judge ruled.

Garaufis ruled in February that American Express' rules for merchants against such activity, known as steering, "imposed actual, concrete harms on competition in the credit and charge card network services market."

The February decision and the injunction issued on Thursday represented victories for the U.S. government and 17 states. They sued American Express in 2010, alleging it broke antitrust law by forbidding merchants from urging consumers to use cards with lower "swipe fees." These are charges that must be paid by a merchant for accepting a credit card payment.

The U.S. Justice Department settled with Visa Inc and MasterCard Inc over the same practices in 2010. The department argued that the companies' rules against allowing merchants to steer customers toward the cheaper cards were illegal under antitrust law.

Card companies charge merchants more than $50 billion a year to process consumer transactions, the government said. Those fees have also spurred years of litigation by the merchants against the card companies.

"We are pleased that the court has ordered American Express to eliminate its illegal anti-steering rules," the Justice Department said in a statement, adding that merchants and consumers would benefit.

American Express did not immediately respond to requests for comment.

The case is U.S. v. American Express Co, U.S. District Court for the Eastern District of New York, No. 10-4496.

(Reporting by Diane Bartz in Washington and David Ingram in New York; Editing by Kevin Drawbaugh and Steve Orlofsky)