UPDATE 2-Liberty Intl. sees stability in UK property

* Interim NAV p/share 448 pence, in line with estimates

* Pledges 5 pence per share interim dividend

* Portfolio falls 12.4 pct to 6.1 bln stg, beats benchmark

* Shares 0.3 pct down at 435.5 pence by 0802 GMT

(Adds detail, CEO quotes, share price)

By Sinead Cruise

LONDON, July 31 (Reuters) - Britain's biggest mall owner, Liberty International LII.L, posted a 40 percent fall in interim net asset value per share on Friday but raised hopes the worst of the commercial property market maelstrom may be over.

"After a two year period of exceptional turmoil ... we can, with some relief, report to shareholders welcome signs of at least a measure of stability, if not yet recovery, in property and economic market conditions," Chief Executive David Fischel told a conference call.

The company, which owns the Covent Garden market in London's West End tourist hub, said the value of its investment portfolio fell 12.4 percent to about 6.1 billion pounds ($10.05 billion) in the six months to end-June.

This fall was better than the comparable 14 percent fall reported by benchmark provider Investment Property Databank.

Shares in the company, which is broadly seen as an economic bellwether by real estate analysts, dipped 0.3 percent to 435.5 pence by 0802 GMT, behind a 1.1 percent rise in broader UK property stocks.

Fischel said Liberty saw a substantial slowdown in the rate of tenant failures in the second quarter, with new tenants in administration dropping to 33 units and 4.8 million pounds of the total rent roll against 92 units and 14.5 million in the first quarter.

Footfall in its UK shopping centres rose 3 percent in the first half of the year, against the first half of 2008, a figure Fischel said was a testament to the ongoing attractiveness of prime regional shopping centres to the general public.

Liberty reported an occupancy rate of 98.3 percent, against 98.7 percent at end-December, reflecting the slowdown in tenant failures, but Fischel said further collapses were inevitable.

"We had a one-off demand shock, where we saw 5 percent (of the rent roll) go in one month in December led by Woolworths, then another 5 percent in the first quarter," he said.

"That's something we have never seen in the 30-something years we have been in the shopping centre industry. I don't think we will see that again but there will be further tenant failures for sure," said Fischel.

Rental income for the period slipped by 4 million pounds on the same period last year to 190 million pounds.

The results were the first to be published since a 522 million pounds capital raising in the second quarter.

Fischel said Liberty now had 928 million pounds of cash and committed facilities on its balance sheet but he ruled out a rapid investment spree, and said the firm would instead use some of the funds to consider extending some of its existing assets.

Analysts at KBC Peel Hunt said the firm was yet to fully resolve its fundraising needs and said it had to sell a further 1 billion pounds of property to bring its assets to gearing ratio to a "comfortable" level under 100 percent.

By contrast, Fischel said asset sales were largely complete and that Liberty was now enjoying a stronger financial position.

Despite greater property market optimism, Fischel said the road to economic recovery was likely to be a long one.

"I don't think anyone is expecting magical recovery here, it is going to be hard work but we have got a great quality business and the difficult conditions we have seen in the last six months has accelerated outperformance of top quality centres over the rest," he said.

MIXED MESSAGES

The results rounded off a week of mixed assessments on the condition of the UK economy and the badly bruised commercial property market.

Earlier on Friday, a report from retail research firm Local Data Company showed vacancy rates for town centre shops in England and Wales had trebled to 12 percent in the year to end-June as more retailers fell victim to the recession.

Ratings agency Standard & Poor's (S&P) sounded fresh alarm bells for the creditworthiness of UK property firms on Monday, punctuating a five-month rally for the FTSE 350 Real Estate sector .FTNMX8730.

S&P's warning was muffled by positive news of healthy tenant demand from small business landlord Workspace (WKP.L), which said its flexible leasing strategy had been rewarded by rising occupancy levels.

Developer Quintain Estates & Development (QED.L) also observed signs of pricing stability in specific parts of the market. (Editing by Andrew Macdonald) ($1=.6067 Pound) (See www.reutersrealestate.com for the global service for real estate professionals from Reuters)