UPDATE 1-UK Mail gains from rival's demise; dumps pallets unit (Jan. 13)

(Corrects Jan. 13 story to remove references to Royal Mail (LSE: RMG.L - news) in paragraphs 6 and 7; removes paragraph 9. Royal Mail did not report any problems during the Christmas period)

Jan 13 (Reuters) - UK Mail Group Plc said its parcel delivery business had been boosted after rival City Link stopped operations last month, adding it had decided to pull the plug on its ailing pallets unit.

Shares (Dusseldorf: DI6.DU - news) in UK Mail (LSE: UKM.L - news) , which provides mail, parcels and logistic services, jumped about 8 percent in thin volumes, making it one of the top percentage gainers on the London Stock Exchange (Other OTC: LDNXF - news) .

The company said it was not revising its full-year outlook at this stage, until it had a better understanding of how sustained the increased business from former City Link customers would prove to be.

The collapse of City Link into administration is reprieve for delivery companies caught up in a price war in the overcrowded parcel market.

UK Mail, which warned in September of lower-than-expected parcel volumes and pricing pressures, said on Tuesday its parcels business handled record volumes in the peak weeks running up to Christmas.

This came as rival Yodel struggled to cope with the pre-Christmas rush, which was much busier than many delivery firms had expected.

Yodel, whose customers include Amazon and Tesco Plc (Xetra: 852647 - news) , warned of delivery delays in mid-December.

"Whilst others have stumbled (Yodel/Hermes) or fallen by the wayside (City Link), the group has had another successful trading period in its parcels business," Investec Securities analyst John Lawson said, as he upgraded his rating on UK Mail's stock to "buy" from "add".

UK Mail said the closure of its small pallets unit -- which delivers pallet loads of goods -- would incur cash costs of about 1 million pounds ($1.5 million), along with an asset write-down of around 2 million pounds.

The unit, which has suffered from lower volumes, accounted for about 5.3 percent of revenue and 2.3 percent of operating profit in the year to March 31, 2014. ($1=0.6598 pounds) (Reporting by Esha Vaish in Bengaluru; Editing by Gopakumar Warrier and Rodney Joyce)