House builder Barratt returned to profit in the first half, thanks to its focus on higher-margin regions and on houses rather than apartments, and said the positive trend had continued with a jump in sales at the start of this year.

Its shares rose to a near two-year high of 135.3 pence and were up 4 percent at 135p by 12:16 p.m., having climbed 34 percent since the company flagged strong first-half results in a trading update in January.

Barratt Development Plc's upbeat performance contrasts with the stagnant UK property market, as along with other house builders it has focused on areas such as London and southeast England, where prices are relatively buoyant, and on more profitable houses rather than cheaper apartments.

While it's still too early to call a material improvement in the market, even on the prudent assumption of a flat market, we will continue to improve margins and reduce debt levels, Barratt Chief Executive Mark Clare said on a conference call.

Some analysts said the positive statement, which echoed strong results from smaller rival Galliford Try , boded well for forthcoming results from others in the sector including Redrow , Persimmon
and Bovis .

Trading statements from house builders over the next few days will also be positive and that will help momentum in the sector, said analyst Rachael Waring at brokerage Panmure Gordon.

They (Barratt shares) have had a phenomenal run but I think we will see them higher in the next few months, said Waring, who has a buy recommendation and a 158p price target. Despite that run, they still trade on a big discount to the other house builders and I think what we're seeing now is just a continued narrowing of that discount.

Barratt, which is one of Britain's largest house builders, swung to a pretax profit of 22 million pounds in the six months to December 31 2011 versus a loss of 4.6 million pounds a year before.

The company also reported a 22 percent rise in private sales and a 24 percent increase in private forward sales in the first seven weeks of 2012.

MAJOR OPPORTUNITY

Some analysts see Barratt as being at a disadvantage because it is highly leveraged compared with other major players in the sector, though Clare said reducing debt was a priority for the company.

The outlook for the second-half is optimistic as house builders move into the key spring selling season, particularly with a new government-backed scheme to help first- time buyers, which Barratt expects to kick in around mid-March.

The company has received around 1,000 registrations a week for the new program, designed to help first-time buyers get on the property ladder, which Clare said presents a major opportunity for the industry.

Clare added a hint of caution about Barratt's prospects, which hinge on the health of the UK economy. Unemployment stands at 8.4 percent and the economy contracted in the fourth quarter of 2011.

Despite the progress in the first half and an encouraging start to the spring selling season, we remain cautious given the economic conditions, he said.

Barratt's revenue in the six months to end-December 2011 increased by 8.6 percent to 953 million pounds, against weak comparative figures impacted by bad weather last year.

The average price for Barratt properties rose 3 percent to 181,200 pounds.

Barratt's debt hit 542 million pounds in the first half versus 537 million at the end of December 2010, although the company forecasts debt to be lower than expected at 350 million pounds at the end of June.

(Editing by Rosalba O'Brien and David Holmes)