July 11 (Bloomberg) -- Hypo Real Estate Holding AG, Germany's second-biggest commercial-property lender, raised its 2007 profit forecast after second-quarter earnings rose 28 percent on higher commission income.

Pretax profit will amount to more than 710 million euros ($977 million) this year compared with the previous forecast of at least 680 million euros, the Munich-based company said today. Second- quarter pretax profit rose to about 183 million euros from 143 million euros a year earlier, it said.

Chief Executive Officer Georg Funke has cut costs and boosted lending outside Germany to improve earnings. New business of about 10 billion euros in the second quarter, 61 percent more than a year ago, helped increase commission income ``considerably'' in the quarter, the company said.

``This is a very positive surprise,'' said Kerstin Vitvar, an analyst at HVB Group in Munich, who recommends investors buy the stock. ``Hypo is doing fine in the current market environment and the fundamental business is well-positioned.''

The shares climbed 1.30 euros, or 2.8 percent, the most in a month, to 47.95 euros in Frankfurt, valuing the company at 6.4 billion euros.

The stock lost 7 percent in the past six months on concerns that increasing competition may erode interest margins and that the lender may be affected by the subprime mortgage troubles in the U.S. Hypo Real Estate says it has never given mortgage loans to consumer clients.

Non-Property Business

The company plans to expand its non-real estate businesses, such as financing roads, railways or airplanes, and so-called securitization. The non-property business should generate a fifth of pretax profit by 2009 compared with about 8 percent at the end of 2006, the company said in March.

Hypo Real Estate forecast in March that new business in commercial real-estate and asset finance will be at least 25 billion euros this year compared with 26.6 billion euros in 2006. After the first half of the year, new business already amounted to 16.5 billion euros.

The company plans to publish final second-quarter figures on Aug. 8. Hypo Real Estate is the No. 2 German commercial property lender after Eurohypo AG, a unit of Commerzbank AG.

To contact the reporter on this story: Oliver Suess in Munich at osuess@bloomberg.net

Last Updated: July 11, 2007 11:36 EDT