(Corrects paragraph 12 to show H1 dividend of 0.4 pence not 40 pence, FY dividend of 0.8 pence not 80 pence, 2012 dividend of 0.5 pence not 50 pence)
* H1 pretax profit rises 123 percent t 3.3 million pounds
* Interim dividend 40 pence/share, plans 80p full-year div
* Confidence returning to the economy - chairman
By Clare Hutchison
LONDON, Sept 16 (Reuters) - Shore Capital expects UK small cap companies to continue to outdo blue chips and increase deal activity, it said on Monday, after a recovery that helped the investment banking boutique more than double first half profit.
Britain's small cap index has risen 21 percent since the beginning of the year, reaching its highest since 2007. That compares with a 9 percent gain for the FTSE 100 index.
Shore Capital's Chairman Howard Shore said the small cap revival is a result of the pickup in the UK economy and government schemes such as scrapping capital gains tax on stocks trading on London's AIM junior stock market.
The government has also allowed shares in AIM companies to be placed in individual savings accounts (ISAs), financial products that offer tax advantages for small savers.
The government has made growth of small and medium-sized businesses a centrepiece of its plan to revitalise the country's economy after a deep recession following the financial crisis.
"Confidence is beginning to return to the economy," Shore, the company's founder, told Reuters.
"The healthier economy will create a backdrop of people doing more deals and being more active, probably more IPOs as well."
Guernsey-based Shore Capital, which provides corporate broking services and research to small and mid-sized firms, earlier reported a rise pretax profit for the six months to end-June of 3.3 million pounds ($5.2 million), 123 percent up from 2012.
Revenue was unchanged from the year before at 17.8 million pounds.
Excluding the company's investment in German telecoms business Spectrum/DBD, which is winding down its consumer business and is separate from the company's day-to-day operations, profit increased by more than 30 percent to 2.9 million pounds and revenue was up 4.1 percent at 17.2 million pounds.
Its equity capital markets business saw profit up 8.1 percent, while revenue from secondary commissions jumped 11 percent on the year. Its asset management division saw funds under management rise to 0.91 billion pounds from 0.87 billion pounds the year before.
Shore Capital reinstated the interim dividend, giving 0.4 pence per share back to investors. The company said it plans to pay out the same amount in the second half, taking the full year dividend to 0.8 pence per share compared with 0.5 pence in 2012.
Shore said the dividend policy reflects the board's confidence in the business's prospects over the coming years.
Shore Capital shares, which trade on AIM and have climbed more than 43 percent this year, were slightly firmer at 26 pence at 0946 GMT. ($1 = 0.6303 British pounds) (Editing by Louise Heavens)