UPDATE 3-Toll loss narrows, shares rise sharply

* Q4 net loss narrows to $78.8 mln from $81.8 mln

* Warns 2009 revenue to be down significantly

* Pretax writedowns fall by $139 mln

* Shares up 6.3 percent (Recasts first paragraph, updates share movement, adds analyst quote, index)

NEW YORK, Dec 4 (Reuters) - Toll Brothers Inc (TOL.N), the largest U.S. luxury home builder, said its quarterly loss narrowed slightly as it wrote down less inventory, and its shares rose sharply as homebuilders extended a rally spurred by improved mortgage rates.

Toll's shares were up 6.3 percent in morning trading on the New York Stock Exchange despite its warning that its 2009 revenue will be significantly below that of 2008 as the protracted U.S. housing slump continues.

The Dow Jones US Home Construction Index jumped almost 8 percent, led by Beazer Homes USA (BZH.N), up 18 percent at $2.09 and No. 2 U.S. builder Lennar Corp (LEN.N), up 13.5 percent at $8.73.

Toll said its net loss shrank to $78.8 million, or 49 cents per share, in the fourth quarter ended on Oct. 31 versus $81.8 million, or 52 cents, a year earlier. Analysts were expecting a loss of 47 cents a share.

Pretax writedowns fell to $175.9 million from $314.9 million. Revenue tumbled to $698.9 million from $1.17 billion.

Excluding writedowns, the company said it earned $38.5 million, or 23 cents per share, down from $118.2 million, or 72 cents per share.

Chief Financial Officer Joel Rassman warned that with 2008 contracts and backlog down 47 percent and 54 percent, respectively, the company expects revenues in fiscal 2009 "will be significantly below those of FY 2008."

The company said that because of the difficult economic environment, it was not providing any earnings forecast.

Like other homebuilders, Toll has been floundering amid a nationwide housing slump rooted in risky mortgage practices that fueled the 2002-2006 boom years, but backfired when they created a wave of mortgage defaults and foreclosures that drove down prices and devalued land.

Then, more recently, the implosion of the financial sector and the decline in the stock market combined to weaken consumer confidence and erode demand for new homes still further.

"The most frustrating aspect of FY 2008 was that the longer it went, the worse it got -- this, no doubt, was due largely to the financial crisis which deepened over the course of the year," Chief Executive Robert Toll said in a statement.

Throughout the downturn, builders have shifted their focus from profit and growth to cash generation and balance sheet strength by ramping up incentives, selling land and paying off debt when possible.