THE effects of the Iraq War and the Sars virus on the leisure industry looked to be easing as Hilton surprised the City with much stronger figures for its hotels operation than was predicted.

The group warned it was too early to celebrate a full recovery, but a rise in profits to £67.1m from the hotels estate was a welcome boost.

Hilton, which also owns the Ladbrokes betting business, said group profits in the six months to June 30 improved 72 per cent to £189.7m. The betting operation recorded a 51 per cent rise in profits to £153.7m.

David Michels, chief executive, said: "The recent increase in business and leisure traffic supports our view of a recovery in the sector, although it is likely to be 2005 before the real benefits begin to flow."

UK and Ireland proved to be one of the strongest regions for Hilton, with profits up 23.8 per cent to £42.2m after revenues per available room (revpar) - a key industry measure - lifted ten per cent to £60.05.

Hilton said the provincial market was not as buoyant as London, with the revpar increase of 3.4 per cent in the regions contrasting with 17.2 per cent in the capital.

Vinay Bedi, director at investment managers Wise Speke, said: "The most pleasing upturn within the Hilton figures is on the hotel side. The emphasis on hotels within city tourist locations bodes well for the prospects for the new Hilton Hotel here in Gateshead."