UPDATE 2-Hovnanian second-quarter loss narrows

* Stock falls 2.6 percent in after-hours trading

* Second-quarter loss narrows

* Books a $311.3 million gain on debt repurchase

NEW YORK, June 2 (Reuters) - U.S. homebuilder Hovnanian Enterprises (HOV.N) said on Tuesday its quarterly loss narrowed sharply from a year earlier, due chiefly to a gain on the early extinguishment of debt and a tax benefit.

Hovnanian posted a net loss of $118.6 million, or $1.50 per share for the second quarter, which ended April 30, compared with a loss of $340.7 million, or $5.29 per share, last year.

The result was better than the loss of $1.83 analysts on average had forecast, according to Reuters Estimates.

Homebuilders have been bogged down by a glut of homes on the U.S. market, many a result of foreclosures. To survive they have been streamlining operations, reducing land positions, selling off homes started without buyers and focusing on generating cash to pay bills and maintain debt obligations.

The Red Bank, New Jersey-based builder said it ended the quarter with $779.2 million in homebuilding cash and $100 million balance on its revolving credit facility.

Hovnanian ended the quarter with 215 active developments, down 43 percent from the year earlier quarter. Its total land position fell 33 percent to 17,303 lots. The number of unsold homes fell 41 percent to 892 at the end of April.

Its revenue fell to $398.0 million from $776.4 million last year.

In the second quarter, the company repurchased $525.0 million of its own debt, much of which was bought back at 31.5 percent of its face value. As a result, it posted a $311.3 million gain.

During the quarter, the number of homes the company sold fell 44 percent to 1,388, excluding joint ventures. It sold another 71 through joint ventures, down from 196 a year earlier.

To help push sales, the company reduced its average price for a home sold by 9.2 percent to $274,999. The lower price prompted the company to write down $318.9 million in land- related charges.

The number of contracts the company signed fell 29 percent to 1,586. The average price of a home contract during the quarter fell 5.5 percent from a year earlier to $274,659.

Would-be buyers canceled contracts at a rate of 24 percent, down from 29 percent last year and 31 percent in the prior quarter.

"In spite of these encouraging signs, we remain concerned that the combination of the expiration of the $8,000 federal tax credit in November of this year, the depletion of the state funds allocated for the $10,000 California state tax credit for new home buyers and the potential increase in existing home listings due to another wave of foreclosures as the recent moratoriums on foreclosures have ended, could have a dampening effect on our future contract pace," chief executive Ara Hovnanian said in a statement.

In after-hours trading Hovnanian shares were at $2.94, down 2.6 percent from their close of $3.02 per share on the New York Stock Exchange and giving up some of their 24 cents gained during regular trading on Tuesday. (Reporting by Ilaina Jonas; Editing by Andre Grenon)