UPDATE 1-UK's Co-op sees no recovery until at least end-2011

* H1 underlying profit up 17 pct to 260 mln stg

* Profits boosted by Somerfield, Britannia deals

* H1 underlying food sales down 1 pct

(Adds detail, background)

LONDON, Aug 26 (Reuters) - The Co-operative Group, Britain's biggest mutual retailer, does not expect an economic recovery until late 2011 at the earliest, as it posted a 17 percent rise in first-half underlying profit, boosted by acquisitions.

The group, whose businesses include food stores, financial products, pharmacies and funeral services, said on Thursday it made profit before payments to members of 260 million pounds ($401 million), excluding one-off items in the 26 weeks to July 3.

Earnings were boosted by the 2008 purchase of Somerfield food stores and a merger with the Britannia Building Society.

Britain is clambering out of a long and deep recession, but businesses are worried steps to cut government debt, like tax hikes and public spending cuts, could delay a recovery.

"2010 has been challenging so far, with tough economic conditions across all our businesses. Looking ahead ... we do not expect things to improve until late 2011 at the earliest," said Co-op Chief Executive Peter Marks.

The Co-op, which traces its roots to the founding of the co-operative movement in Rochdale, northwest England, in 1844, said group revenues rose 8 percent to 6.9 billion pounds.

But sales at its grocery chain, Britain's fifth largest, fell 1 percent at stores open over a year, hit by disruption from the integration of Somerfield and by a drop in food price inflation.

Asda (WMT.N), Britain's second-biggest grocer, last week posted a 0.4 percent fall in second-quarter underlying sales and warned of a squeeze on consumer spending in the months ahead. [ID:nLDE67G16S]

The Co-op, which pays out a dividend to members depending on how much they spend with the group, said like-for-like sales at rebranded and refitted Somerfield stores were up 2.5 percent.

Trading profit at the food business rose 13 percent to 170 million pounds and was up 45 percent to 109 million in financial services. (Reporting by Mark Potter; Editing by David Cowell)