UPDATE 2-St Modwen loss widens as prices fall, sees better H2

* Scraps interim dividend

* Says fall in comm property values in H2 not to be harsh

* Sees returning to growth by end-2010

* H1 pretax loss 98.3 mln stg vs yr-ago loss 20 mln stg

* Shares fall 1.8 pct

(Recasts, adds CEO, analyst comments, share movement)

By Kumar Alagappan

BANGALORE, July 6 (Reuters) - St Modwen Properties Plc (SMP.L) scrapped its interim dividend as first-half loss widened, hurt by significantly lower property prices, but said the worst was over and expected to return to growth by end-2010.

The British real estate developer said it expected further reductions in the commercial property values in the second half but they might be less severe, even as the residential market was beginning to show early signs of improvement.

"It (the second half) is much more stable than the first half. We will see continued downward valuations coming through in the second half but that will be less severe," Chief Executive Bill Oliver told Reuters by phone.

"So we are hoping that the worst is behind us but we are not quite through as yet," Oliver said, adding that he expected the company to get back to growth in the next 18 months.

"We continue to believe that St Modwen is attractive due to its mix of income-producing and development assets," Numis Securities analyst Chris Millington said in a note to clients.

Given the low carrying value once the market stabilises, the group has the potential to make a rapid return to profit, Millington said.

St Modwen, which specialises in redeveloping towns and cities across Britain, said its net asset value per share as at May 31 fell 20.4 percent to 266 pence since Nov. 30, 2008, amidst adverse market conditions.

The company reported a pretax loss of 98.3 million pounds ($160 million) for the six months ended May 31, compared with a loss of 20 million pounds a year earlier. However, St Modwen reported a trading profit of 6.8 million pounds for the period.

The company, which declared an interim dividend of 3.9 pence per share for the first half, said it would not pay an interim dividend this year to preserve cash. At 1200 GMT, St Modwen shares were down 1.8 percent at 178.25 pence, while the FTSE 350 Real Estate Index .FTNMX8730 was down 1 percent. ($1=.6142 Pound) (Editing by Gopakumar Warrier)