UPDATE 2-FirstGroup says UK rail stabilising, H1 profit down

* H1 profit down 44 percent after 100 mln stg fuel hit

* UK rail revenues up 1.7 percent as market stabilises

* U.S. Greyhound unit showing signs of improvement

* Shares up 1.1 percent

(Adds company, analyst comment, shares, details)

By Rhys Jones

LONDON, Nov 4 (Reuters) - British transport operator FirstGroup (FGP.L) said the domestic rail market had stabilised in recent months but first-half profit had been dented by higher fuel costs and lower sales at its U.S. Greyhound unit.

"British rail is levelling out now, particularly in the London commuter networks and the trend has flattened over the last few weeks," chief executive Moir Lockhead told reporters on Wednesday.

FirstGroup, which has bus operations in Britain and North America as well as British rail franchises, said pretax profit fell 44 percent to 30.3 million pounds ($50 million) in the six months to the end of September as it took a 100 million hit on hedged fuel costs, which it is set to recover in 2010-11.

Group sales grew 5 percent to 2.9 billion pounds as its British rail unit, which includes the Great Western franchise running into London, delivered like-for-like revenue growth of 1.7 percent, while underlying sales at its British bus operations rose 2.4 percent.

The interim dividend was raised 10 percent to 6.65 pence.

Rival British transport groups Arrvia (ARI.L), Go-Ahead (GOG.L), and Stagecoach (SGC.L) recently said revenues were growing steadily across their bus and rail operations. [ID:nLT072655] [ID:nL3396313]

FirstGroup said revenue trends at its U.S. Greyhound bus network, which contributes around 10 percent of group profit, were "showing signs of improvement" despite the unit's first-half revenues falling 5 percent to 309 million pounds.

A British Greyhound service launched earlier this year had started well, the company said.

Shares in FirstGroup, which have jumped 13 percent in the past quarter, were up 1.1 percent at 378.7 pence by 0845 GMT, valuing the group at 1.8 billion pounds.

"There are no sign of trouble in the U.S., Greyhound apart, and UK rail isn't causing any damage either. That creates the platform for lower fuel costs to boost earnings next year," said Astaire analyst Douglas McNeill.

FirstGroup is expected to report a pretax profit of 253.8 million pounds for the year to March and 309.6 million in 2010-11, according to Thomson Reuters I/B/E/S.

"We're comfortable with earnings expectations this year and next" said Lockhead.

FirstGroup has been partly protected from the rail downturn that has hit rivals such as National Express (NEX.L), which it tried to takeover in June, due to revenue support from the British government.

However, Lockhead said he was "not interested" in buying up any assets National Express may shed to help reduce its debt pile and that FirstGroup was "focused on getting the business in shape to come out of the recession".

The company, on track to make 200 million pounds in cost savings this year, said net debt fell 5 percent to 2.37 billion pounds at the end of the first half, largely due to foreign exchange movements. (Editing by Kate Holton and Dan Lalor) ($1 = 0.6071 pound)