Top-five homebuilder Lennar Corp reported a narrower-than-expected quarterly loss on Wednesday and said it was on track to make a profit in 2010, sending shares up nearly 5 percent in early trading.

Miami-based Lennar reported a first-quarter loss of $6.5 million, or 4 cents per share, compared with a loss of $155.9 million, or 98 cents per share, a year earlier.

On average, analysts had expected a loss of 30 cents per share, according to Thomson Reuters I/B/E/S.

Revenue fell 3 percent to $574.4 million, but bested analysts' expectations of $568.2 million.

Average home sale prices rose 6 percent while expenses fell during the quarter, resulting in a jump in gross margins to 19.2 percent from 6.5 percent a year ago, Lennar said in a statement.

Orders rose 18 percent despite a reduction in sales incentives offered to home buyers. As a percentage of home sales revenue, incentives fell to 12.5 percent from 17.1 percent.

We believe that our core business will continue to improve as we deliver homes from our recent strategic land acquisitions and volume levels increase as the recovery of the housing market continues, Chief Executive Stuart Miller said in a statement.

In the past six months, as some housing markets have stabilized and government supports like the home-buyer tax credits have fueled demand, Lennar and its rivals have reversed the downturn-era strategy of selling land inventory and hoarding the proceeds.

Instead, they jumped back into the land market, even to the point of running up prices and creating shortages of finished lots -- already improved with infrastructure such as sewers -- in the most desirable locations.

Lennar bought 2,700 home sites from Starwood Land Ventures LLC after Starwood acquired a Florida portfolio from bankrupt TOUSA Inc and bought two loan portfolios backed by real estate assets from the Federal Deposit Insurance Corporation.

We believe first-quarter activity marks just the beginning of several potential transactions that create low-risk profit streams for the company, Raymond James analyst Buck Horne wrote in a client note.

Lennar also announced a new reporting segment, Rialto Investments, which acquires and sells distressed loans and securities portfolios and that should add modestly to profits for the rest of 2010, analyst Dan Oppenheim said in a note to clients.

Of the biggest U.S. homebuilders, Lennar's share price has risen the most in the past year, up 81 percent compared with a 6 percent rise for No. 1 Pulte Group Inc
and a 35 percent rise for the group as measured by the Dow Jones U.S. Home Construction Index <.DJUSHB>. Lennar's shares have risen 9 percent since February 10, the day it announced its transaction with the FDIC.

The company's shares were up 4.69 percent, or 80 cents, at $17.86 during early trading on the New York Stock Exchange.

(Reporting by Helen Chernikoff; additional reporting by Bijoy Koyitty in Bangalore; editing by John Wallace and Maureen Bavdek)