UPDATE 2-Reed beats H1 forecasts, recovery to lag economy

* Underlying sales up 1 pct, adjusted op profit down 3 pct

* Recovery will be gradual, lag economic conditions

* Shares up 4.6 pct

(Adds CEO, analyst comment, shares, adetails, background)

By Georgina Prodhan

LONDON, July 29 (Reuters) - Publishing and events group Reed Elsevier (REL.L)(ELSN.AS) said underlying revenues returned to growth in the first half, beating expectations and lifting its shares, as advertising and promotions appeared to stabilise.

Reed said on Thursday the outlook for its exhibitions business, the world's largest, was improving, after first-half revenues at the division grew 9 percent, helped by some large biennial shows that took place this year but not last year.

Informa (INF.L) and Euromoney (ERM.L) have also reported improving trends for trade fairs in the last week as companies begin to loosen travel and sponsorship budgets. [ID:nLDE66Q0II]

Reed, however, said recovery in its professional publications, which are paid for by subscription, would be slow.

"The subscription nature of much of our revenues, whilst providing considerable resilience in the recent downturn, means that growth will lag improvements in economic conditions," Chairman Anthony Habgood said in a statement.

Shares in Reed Elsevier rose 4.6 percent to 556 pence by 0744 GMT, the top gainers in Europe's media index .SXMP, which rose 0.8 percent.

London brokerage Numis raised its target price to 550 pence from 525 pence, noting that sales and profits beat expectations, but kept its "hold" recommendation.

"We retain our view that Reed has world class assets... though our top down preference remains for groups which offer more cyclical recovery potential," its analysts wrote.

Reed said on Thursday revenues were flat in its LexisNexis legal publishing business as legal activity slowed and operating profit fell 14 percent as it continued to invest to regain market share lost to Thomson Reuters' (TRI.TO)(TRI.N) Westlaw.

"We have seen some encouraging signs with increases in new sales," Chief Executive Erik Engstrom told journalists on a conference call.

Underlying revenue for the six months to end-June rose 1 percent to 2.99 billion pounds ($4.67 billion), beating the Thomson Reuters StarMine SmartEstimate of 2.93 billion pounds.

SmartEstimates give more weighting to analysts with a history of accuracy.

Adjusted operating profit fell 3 percent at constant currencies to 758 million pounds, while adjusted earnings per share fell 13 percent to 21.3 pence, also beating the SmartEstimate of 19.8 pence.

Reed stuck to its forecast for a slightly lower operating margin this year, and kept its interim dividend at 5.4 pence.

Scientific and academic publishing division Elsevier, which accounted for 42 percent of the company's adjusted operating profit, reported 2 percent revenue growth and a 4 percent increase in profit.

The company said science and medical journal subscription renewals were are expected, while the academic budget environment was difficult.

Trade-magazines division RBI, which the company is restructuring after failing to sell it, saw underyling sales decline 4 percent and underlying profit rise 4 percent, as it closed some non-core U.S. titles. ($1=.6402 Pound) (Reporting by Georgina Prodhan; Editing by Jon Loades-Carter and Simon Jessop)