UPDATE 5-Hyatt stock rises 12 pct in NYSE debut

* Hyatt shares up 12 pct in NYSE debut

* Strong balance sheet, industry outlook spur shares

* Second-largest IPO on NYSE this year (Recasts first three paragraphs; adds quotes from San Francisco strike, background on Boston strike)

By Deepa Seetharaman

NEW YORK, Nov 5 (Reuters) - Hyatt Hotels Corp (H.N) shares climbed 12 percent in their debut on Thursday as investors bet the company's strong balance sheet means it will be able to grow at a rapid pace when the industry eventually rebounds.

Hyatt's initial public offering comes as lodging stocks are on the mend. The Dow Jones U.S. Hotels index has shot up 55 percent this year on signs of an economic recovery.

The company sold 38 Class-A million shares at $25 apiece on Wednesday, to raise $950 million for the controlling Pritzker family. The company's market capitalization after its first day of trading was $1.06 billion.

In trading on Thursday, shares rose as high as $28.25 and closed at $28 on the New York Stock Exchange.

Hyatt's IPO is the second-largest on the NYSE this year after Banco Santander (BSBR.N). Ancestry.com Inc (ACOM.O) also went public on the Nasdaq and its shares closed more than 5 percent higher to $14.20. [ID:nN0589649]

"Finally we had two deals that were a lot better quality than what we had been seeing in the last several weeks," said Scott Sweet, a senior managing partner at advisory firm IPO Boutique. "It gives quality deals (next week) momentum."

Discount retailer Dollar General and youth clothing chain rue21 Inc are slated to go public next week.

Little more than half of Hyatt's shares exchanged hands Thursday, Sweet said. Typically 80 percent of shares or more trade in a stock's debut.

"Goldman did a good job locking these shares up and putting it in good hands that are likely to hold," Sweet said. "That would account for the reasoning behind why this stock has continued to advance from $27 to $28."

The company's underwriters, led by Goldman Sachs Group Inc (GS.N), will have one month to exercise an option to buy more shares. If so, that fresh capital will go straight to Hyatt.

FIVE TIMES THE CASH

Hyatt's debut may also be good news for privately-held Hilton Worldwide, should owner Blackstone Group (BX.N) decide to try and exit it in the future. Blackstone is in talks over reducing debt at the chain, according to a source. [ID:nN28299183]

Sluggish corporate demand has forced hotels to lower room rates and next year is unlikely to bring much reprieve. Both Marriott International Inc (MAR.N) and Starwood Hotels & Resorts (HOT.N), have forecast a lackluster 2010.

But analysts expect the industry to rebound sharply in the subsequent three years as the supply of new rooms slows and business demand recovers.

"People are assuming that there's going to be significant recovery in the outer years," said John Arabia, a lodging analyst with Green Street Advisors. "That's the only way we can make sense of these share prices."

This outlook coupled with Hyatt's strong cash position drove up the company's shares, analysts said. Chicago-based Hyatt has $1.3 billion in cash, more than five times the combined cash of Marriott and Starwood.

Arabia said Hyatt's shares traded at a discount based on its valuation, due partly to concerns over the Pritzkers' role in the company. The family owns the bulk of Hyatt's Class-B stock, which has more voting power than Class-A shares.

Separately, several dozen strikers from union Unite Here Local 2 marched in front of a Grand Hyatt in San Francisco on Thursday, marking the first day of a three-day strike focused on healthcare.

"We work very hard and we need a little more respect, at least of our needs," said Lorna Villanueva, 69, who inspects rooms at Hyatt, where she has worked for more than 36 years.

In September, the governor of Massachusetts threatened to halt state business with Hyatt unless the company rehired 98 of its Boston housekeeping staffers whose jobs were outsourced. Hyatt offered the workers new full-time jobs days later.

(Reporting by Deepa Seetharaman; additional reporting by Peter Henderson in San Francisco; editing by John Wallace, Andre Grenon and Bernard Orr)