Travel group TUI fuels hopes for Turkey recovery

* Q1 underlying loss narrows to 25.4 mln eur

* Turkey, Egypt bookings returning

* Says on track for FY profit growth target

* Shares (Berlin: DI6.BE - news) rise 2 pct, top FTSE gainer (Recasts, adds more comments on Turkey)

BERLIN, Feb 13 (Reuters) - Europe's largest travel group TUI (Swiss: TUI1.SW - news) said summer bookings for Turkey were recovering, echoing comments by rival Thomas Cook (Frankfurt: A0MR3W - news) and adding to hopes that pressure on profit margins for tour operators may ease.

Travel companies and airlines increased their offerings to Spain over the last couple of years as demand shifted away from Turkey and Egypt on security grounds.

The resulting competition put pressure on prices and was one of the reasons behind the demise of airlines Air Berlin (LSE: 0GPE.L - news) and Monarch last year.

TUI (LSE: 0NLA.L - news) said bookings to Turkey from Germany for this summer were up by around 50 percent, while Egypt was also up.

"Both destinations, which are very big destinations, are back," CEO Fritz Joussen told journalists on Tuesday after the group reported first quarter results.

Rival Thomas Cook last week said that recovering demand for trips to Turkey would help offset the impact on its business of rising costs in Spain.

"Turkey and Europe will make 2018 a strong year for Thomas Cook and TUI," Bernstein analysts said on Monday as they upgraded Thomas Cook to "market-perform".

TUI shares rose 2 percent in early trading on Tuesday, the top riser on the FTSE 100.

Asked to comment on the effect on margins, Joussen said it was currently about building volume in Turkey, adding TUI had extended some hotel contracts there last summer, when it could have ended them.

"We took a little bit of a risk and it is paying off," he said.

TUI narrowed its underlying core loss by more than half in the first quarter to 25.4 million euros ($31.3 million) and said it was on track to increase profits by at least 10 percent at constant currencies this year.

Its hotels and cruises businesses helped to boost earnings in what is typically a loss-making quarter for holiday companies, even as it took a hit from the insolvency of Austrian airline Niki.

TUI took a 15 million euro charge from the insolvency of Air Berlin last year and added another 20 million euro write-down in the first quarter due to Niki, a former unit of Air Berlin which filed for insolvency in December.

TUI had leased 14 planes to Air Berlin. Of those, seven are now being leased to Lufthansa (Xetra: LHAB.DE - news) 's Eurowings and four are flying this winter for TUI.

Joussen said TUI would like to fly two planes out of Duesseldorf and was interested in slots there. Duesseldorf was a hub for Air Berlin and is located in Germany's most populous region, making it attractive for airlines.

($1 = 0.8118 euros) (Reporting by Victoria Bryan; Additional reporting by Sarah Young in London; Editing by Maria Sheahan and John Stonestreet)