STOCKS NEWS EUROPE-UK homebuilders to see strong growth in 2014-Citi

UK housebuilders are expected to enjoy another good year of earnings and net asset growth in 2014 and strong balance sheets could result in higher dividend payouts, say analysts at U.S. bank Citi.

"Good volume growth, underlying house price inflation and muted cost inflation supports further expansion in margins and returns. Balance sheets remain generally strong, with strong cash-generation supporting more capital returns and higher dividends," Citi writes in a note.

The Thomson Reuters UK Homebuilding index surged 59 percent last year after climbing 65 percent in 2012. The index is up 0.3 percent by 0938 GMT and has gained 4 percent in less than 10 trading days of the new year.

"Despite the strong share price performance, we continue to believe that the sector is well positioned to deliver value over the medium term as it benefits from continuing recovery against a relatively favourable macro backdrop."

Higher interest rates and unsustainably high house price inflation feeding through to land price inflation remain the key risks but these look relatively contained at this point, adds Citi.

Citi downgrades Redrow (LSE: RDW.L - news) to "neutral" and upgrades Barratt to a "buy" on valuation grounds. It has a "buy" rating on Bellway (LSE: BWY.L - news) , Bovis and Persimmon and is "neutral" on Taylor Wimpey (LSE: TW.L - news) and Berkeley Group .

Reuters messaging rm://atul.prakash.thomsonreuters.com@reuters.net