UPDATE 3-Bovis targets Galliford's housing arm with improved bid

* Galliford's housing units to be valued at 1.08 bln stg

* Previous talks for a 1.05 mln stg deal broke down

* New proposal includes 300 mln cash, Bovis to raise equity

* Galliford shares jump to six month high, Bovis slips (Adds analyst comments)

By Shashwat Awasthi and Noor Zainab Hussain

Sept 10 (Reuters) - Britain's Galliford Try has restarted talks to sell its residential housing businesses to Bovis Homes after Bovis nudged up its proposed offer to 1.08 billion pounds ($1.34 billion) and included a cash component.

The talks, which mark a turnaround in fortunes since 2017 when Bovis rejected a bid approach https://www.reuters.com/article/bovis-ma-galliford/uk-builder-bovis-shares-jump-8-pct-on-galliford-try-talks-idUSL5N1GQ1JE from Galliford, come amid a slowdown in Britain's housing market, partly due to uncertainty caused by the country's departure from the European Union.

"The individual businesses lack scale and by combining they might be better placed to compete with industry heavyweights like Barratt Developments and Persimmon," said Russ Mould, investor director at AJ Bell.

A deal would also allow Galliford to concentrate on turning round its other construction interests.

Galliford shares surged more than a quarter in value to a six-month high of 780 pence in early Tuesday trading. Bovis's shares fell about 4%.

Earlier this year, Bovis was in talks to buy Galliford's Linden Homes and Partnerships & Regeneration divisions for 950 million pounds in shares and the assumption of 100 million pounds in debt, but discussions ended after Galliford said they were not in its shareholders' interests.

Under the new proposal, Galliford shareholders would get 0.57406 Bovis shares for each Galliford share they own, implying a value of 675 million pounds, and Galliford would also be paid 300 million pounds in cash.

"(The) new cash element will be a welcome injection for the newly reorganised Galliford construction division, which has been struggling after problems with the Aberdeen bypass and the Queensferry crossing," Neil Wilson, chief market analyst at Markets.com, said.

Galliford and Balfour Beatty were left finishing the Aberdeen contract, one of Scotland's biggest motorway projects, following the high-profile collapse of Carillion.

Wilson noted that Galliford's negotiating position had weakened since the last round of talks with Bovis collapsed, following a profit warning in April.

Bovis said it would fund the cash part of the deal from an equity placing, additional debt and existing resources.

Galliford shareholders would own about 29.3% of the enlarged Bovis, while Bovis would also take on Galliford's 10-year debt worth 100 million pounds.

Galliford's pension schemes would transfer to Bovis as well.

Bovis said significant work was still needed before a definitive deal could be signed, including agreeing on commercial terms, due diligence and arranging funds.

Bovis also reported a 20% rise in profit for the six months ended June 30 to 72.4 million pounds, adding it had not seen any significant change in customer behaviour ahead of Brexit.

Galliford, which has reduced its exposure to Central London where the housing market slowdown has been most marked, is best known for construction projects ranging from the redevelopment of the Wimbledon tennis venue to hospitals and city bypasses.

($1 = 0.8089 pounds) (Reporting by Shashwat Awasthi in Bengaluru; Editing by Arun Koyyur and Mark Potter)