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UPDATE 2-Lennar profit beats as lower mortgage rates boost home sales

Ankit Ajmera

(Adds second-quarter details, analysts' comments, updates shares)

June 25 (Reuters) - Lennar Corp reported a higher-than-expected quarterly profit on Tuesday, as lower mortgage rates boosted home sales during the crucial spring selling season, sending the No. 2 U.S. homebuilder's shares up as much as 3.6%.

The results highlight an improving U.S. housing market, which had struggled last year with rising interest rates and home prices.

"The well-documented market pause in the second half of 2018 set the stage for more moderate home price increases and lower interest rates which stimulated both affordability and demand," Lennar Chairman Stuart Miller said in a statement.

"Accordingly, through the second quarter, the homebuying market solidified," Miller said.

Lennar said home sales increased 5% to 12,729 units in the three months ended May 31, topping the company's prior forecast of between 11,700 and 12,000 deliveries.

The 30-year fixed mortgage rate has dropped from a peak of about 4.94% in November to an average of 4.14% in the week ended June 14, hovering at levels lowest since Sept. 2017, possibly improving affordability.

Orders at Lennar increased 0.5% to 14,518 homes in the quarter, ahead of the 14,300 units estimated by the homebuilder at the top end of its forecast range.

Despite the better-than-expected results, Lennar reaffirmed its full-year home sales target of over 50,000 homes, possibly reflecting slowing economic growth.

Analysts have expressed concerns about future home sales in 2019 as last year's massive stimulus from the Trump administration's tax cuts and spending increases fades.

Uncertainty related to the U.S-China trade war is also adding to the woes of homebuilders, likely keeping foreign buyers at bay and hurting key housing hubs such as California - the biggest revenue generator for Lennar.

"Quick drops in mortgage rates often have an effect of pulling forward contracts from home buyers, which can leave an air-pocket of demand in subsequent months," Raymond James analyst Buck Horne wrote in a note last week.

Lennar's gross margins in the second quarter fell to 20.1% from 21.6%, due to an 80-basis point increase in incentives offered to homebuyers, the company said.

Lennar earned $1.30 per share in the quarter, beating analysts' average estimate of $1.14 per share, according to IBES data from Refinitiv.

Total revenue rose 1.9% to $5.56 billion and was above the estimate of $5.10 billion.

Shares of other homebuilers including D.R. Horton Inc , PulteGroup Inc and Toll Brothers Inc all rose more than 1%. (Reporting by Ankit Ajmera in Bengaluru; Editing by Maju Samuel and Anil D'Silva)