Merlin highlights challenging London market

LONDON (Reuters) - Britain's Merlin Entertainments (MERL.L), operator of the Legoland and Alton Towers theme parks, on Thursday cautioned that London remained a challenging market despite recent favourable foreign exchange rate movements.

The world's second-biggest attractions operator behind Walt Disney (DIS.N), said trading in 2016 had been broadly in line with expectations.

However, Merlin, whose attractions in Britain's capital include the Madame Tussauds waxworks, London Dungeon and Sea Life, said London remained a tough market.

Worries about the possible exit of Britain from the European Union in a June 23 referendum vote have weighed on sterling since late last year. A weaker pound is helpful for British tourism.

Merlin said new rides and features opened so far this season, as well as three new Midway attractions, had been well received.

It also said development of new accommodation was progressing well, with the expansion of Legoland Deutschland Holiday Village open, and more at Gardaland, Chessington World of Adventures and Warwick Castle on schedule to open in the coming weeks.

Prior to Thursday's update, analysts were forecasting a 2016 pretax profit of 293 million pounds, Reuters data showed, up from 250 million in 2015.

The 2015 result was held back by a drop in visitors to Alton Towers in central England after a June rollercoaster crash left five people with life-changing injuries.

Shares in Merlin, down 8 percent this year, closed Wednesday at 431 pence, valuing the business at 4.3 billion pounds.

(Reporting by James Davey; editing by Jason Neely)