UPDATE 2-Dunelm sales, margins top hopes; shares rise

* H2 underlying sales up 5.0 pct, FY down 0.5 pct

* Says winning market share

* Full-year gross margin seen up 120 basis points

* Remains cautious on outlook for 2010

* Shares up 5.5 pct at 0812 GMT

(Adds detail, CEO, analyst comments, shares)

By James Davey

LONDON, July 13 (Reuters) - British homewares retailer Dunelm Plc (DNLM.L) bucked sector gloom with better than expected second-half sales and profit margin growth, along with market share gains, sending it shares over 5 percent higher.

"The (UK) homewares market has declined in the last 12 months, but... consumer spending does not yet appear to have been squeezed to the extent that many commentators were anticipating," said Chief Executive Will Adderley.

But he said that with the prospect of increasing tax burdens on consumers and the possibility of higher mortgage costs the firm remained cautious in its outlook for 2010.

Shares in Dunelm have increased in value by 80 percent over the last year, outperforming the UK general retailers index .FTASX5370 by 46 percent, but have lost 11 percent over the last three months.

The stock was up 12.2 pence at 222.5 pence at 0812 GMT, valuing the business at about 443 million pounds ($713.2 million).

Dunelm, which sells products like curtains, bedding, blinds, rugs and lighting from 94 mostly out-of-town stores, said sales at shops open at least a year increased 5.0 percent in the 26 weeks to June 27.

The outcome easily beat analyst expectations of growth of about 0.5 percent and compares with growth of 2.3 percent in the 17 weeks to April 25, implying growth of over 10 percent in the latter nine week period.

Full-year sales were 417 million pounds, a fall of 0.5 percent on a like-for-like basis.

Gross margin for the full-year was anticipated to be up 120 basis points, again better than analysts' expectations.