UPDATE 3-Carillion H1 earnings to rise, outsourcing grows

* Support services, PPP units performing well

* Net debt down by more than 75 million stg since year-end

* Says UK non-housing construction still tough

* Shares up 1 percent by 0910 GMT

(Adds CEO comments from analyst call, updates shares, details)

By Rhys Jones

LONDON, July 8 (Reuters) - British building and outsourcing group Carillion (CLLN.L) said it expected improved half-year earnings, driven by growth in support services and public sector projects, though the UK construction market was still slow.

Carillion, which generates much of its revenue from government work and Public Private Partnership (PPP) projects, said on Wednesday its support services unit continued to benefit from long-term public sector contracts and that the economic downturn was creating a range of opportunities for the division.

"In Britain the private sector is biting the bullet in terms of outsourcing now, and there will be huge opportunities as the squeeze goes on government spending," Carillion Chief Executive John McDonough told analysts on a conference call.

Carillion posted a pretax profit of 53.6 million pounds ($87 million) for the six months to the end of June 2008 and analysts expect the group to report a profit of 179 million pounds for 2009, according to Reuters Estimates.

"We expect to build on our strong first-half performance and achieve our objective of delivering materially enhanced earnings in 2009," Carillion said in a trading statement ahead of its half-year results on Aug. 27.

The company, which manages much of Britain's rail and motorway networks, said margins were improving and that it was benefiting from integration cost savings following last year's acquisition of Alfred McAlpine.

Carillion expects to save 35 million pounds in 2009 and 50 million pounds in 2010.

The firm said trading in Britain's non-housing construction market remained challenging but it was being selective about the projects it takes on.

British housebuilder Persimmon (PSN.L) had on Tuesday raised hopes that the worst for the house building sector may be over when it said volumes and orders were ahead of 2008. [ID:nL6258493]

Carillion said its Middle East construction services business would increase 2009 revenues to around 600 million pounds from 464 million pounds in 2008 at margins of around 6 percent due to its strong order book in the region.

"It's a myth that Dubai has completely stopped; there are opportunities there, but I wouldn't say it is booming. Abu Dhabi is going well, and we're moving into Qatar next year, and we see the infrastructure side of things being very promising for us," said McDonough.

It said net borrowing at the half-year would fall to around 150 million pounds from 226.7 million at the end of 2008, largely as a result of the sale of its IT services businesses and two PPP investments.

Shares in Carillion were up 1 percent at 251.50 pence by 0910 GMT in a falling market, valuing the company at just over 1 billion pounds. ($1=.6176 Pound) (Editing by Will Waterman)