* 2nd-qtr adj earnings $0.09/share vs $0.07 est
* Revenue rises 38 percent
* Orders rise 36 percent
* Shares up 7 percent
By Mridhula Raghavan
May 22 (Reuters) - Luxury homebuilder Toll Brothers Inc reported stronger-than-expected results on higher average selling prices and booked its highest quarterly orders in seven years, sending its shares up 7 percent.
Record-low interest rates and rising rents have encouraged more Americans to buy homes after the housing market bust, but concerns over rising costs for land, building materials and labor have dented builders' enthusiasm in the last few months.
Toll missed Wall Street expectations last quarter as costs, including high lumber prices, hurt profits.
But a tight inventory of available homes has helped to counteract this in the second quarter.
"We are finding that in many markets as prices increase, a sense of urgency takes hold and demand continues to rise," Toll Brothers Chief Executive Douglas Yearley said in a statement on Wednesday. "Buyers who have been on the sidelines for six years are jumping in."
The company said new orders, a key indicator for builders -- which do not recognize revenue until they close on a home -- rose 36 percent to 1,753 homes in the second quarter. The value of these orders jumped 57 percent to $1.19 billion.
Toll Brothers, which targets affluent customers earning about $200,000, said its average selling price increased 3.6 percent to $577,000 in the second quarter.
"As long as home prices are going up faster than costs, they are going to see their margins increase. I think that's definitely happening for all homebuilders," UBS Investment Research analyst David Goldberg said.
Toll, the only publicly traded U.S. luxury homebuilder, has also gained market share as small and mid-sized private builders remain constrained for capital.
The U.S. homebuilder sentiment index rose to 44 in May from 41 in April as sales improved, suggesting the housing market recovery still has momentum, data from the National Association of Home Builders showed last week.
A reading below 50 means that more builders view market conditions as unfavorable than favorable. While the index has not crossed 50 since April 2006, it was up 16 points from a year earlier despite two months of losses.
Toll's net income rose to $24.7 million, or 14 cents per share, from $16.9 million, or 10 cents per share, a year earlier. The profit included a pretax gain of $13.2 million.
Excluding items, the company earned 9 cents per share, 2 cents ahead of the average analyst estimate.
Revenue rose 38 percent to $516 million, above the average forecast of $512.4 million, according to Thomson Reuters I/B/E/S.
Toll Brothers shares, which have gained about 11 percent this year, were up 7 percent at $38.58 on the New York Stock Exchange on Wednesday.