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IHG upbeat as economic revival lifts demand in United States

A guest eats lunch inside a restaurant of the Holiday Inn, run by the InterContinental Hotels Group (IHG), in New Delhi January 31, 2014. REUTERS/Anindito Mukherjee

By Neil Maidment

LONDON (Reuters) - InterContinental Hotels Group Plc (IHG.L), under pressure from an activist investor to consider merging with a rival, said strong trade in its key U.S. market left it upbeat on its prospects despite problems in countries like Russia, Thailand and Israel.

IHG, the world's biggest hotelier with around 4,700 hotels under brands such as Crowne Plaza and Holiday Inn as well as its eponymous label, makes almost two-thirds of its operating profit in the United States, where business is being buoyed by increasing levels of business and leisure travel.

That trend helped IHG post a 6 percent rise in underlying operating profit, excluding the effect of exchange rates, one-offs and asset disposals, to $301 million for the six months to June 30.

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"We have achieved a strong first half performance ... whilst several of our key markets continue to experience some political or economic uncertainty, we are encouraged by current trading trends," chief Richard Solomons said.

The results come a day after activist investor Marcato Capital Management said it had hired investment bank Houlihan Lokey to advise it on strategy at IHG, three months after a report that the hotels operator had rebuffed a 6 billion pounds takeover bid.

IHG has declined comment on the bid or on the position of Marcato, which in May urged the company to consider a tie-up with a rival.

Shares in IHG, which raised its interim dividend 9 percent to 25 cents, fell 2.9 percent to 2,296 pence at 0815 GMT (9.15 a.m. BST) but were still up 25 percent on a year ago. The stock hit a record high of 2,494p as recently as July 24.

"With forecasts expected to remain broadly unchanged, we would expect the shares to drift off this morning," Deutsche Bank analyst Geof Coyler said, maintaining his "buy" rating.

IMPACT ON PROFITS

IHG has 14 hotels in Russia and two in Ukraine, whose army is battling pro-Russian separatists in the east of the country.

In Thailand, a military coup has created political uncertainty that has damaged trade, while business in Israel has been hit by the Jewish state's conflict with Hamas in Gaza. IHG has 16 hotels in Thailand and nine in Israel.

"Markets like Thailand have been impacted, also in Russia and Israel, so the big markets continue to grow very strongly but some of these smaller markets we are highlighting because they do have an impact on our profitability," Chief Financial Officer Paul Edgecliffe-Johnson told reporters.

The group reported a 5.8 percent rise in global revenue per available room (RevPAR), a key industry measure, for the half, with U.S. growth rising to 6.7 percent in the second quarter from 6.4 percent in the first.

Increased travel due to a recovering economy in the United States has resulted in tight supply of hotel rooms and higher occupancy, allowing hoteliers such as IHG and rivals Hilton Worldwide Holdings Inc (HLT.N) and Starwood Hotels and Resorts Worldwide Inc (HOT.N) to raise rates.

RevPAR also grew in Europe, led by the UK, and in greater China, where almost a third of IHG's expansion pipeline is located.

Continuing a strategy of selling hotels and then managing them under contract, IHG said good progress was being made with its review of remaining owned hotels, which some analysts believe will lead to the disposal of its trophy InterContinental hotels in Paris and Hong Kong.

(Editing by Louise Heavens and David Holmes)