* Sales of used cars up 8.5 pct, new cars down 26 pct
* Expects new car market to remain challenging in H2
* Wants to see scrappage scheme extended
* Shares flat at 68.5 pence by 0720 GMT
(Adds company, analyst comment, shares, detail)
By Rhys Jones
LONDON, Aug 19 (Reuters) - British car dealer Lookers reported a 13.5 percent rise in first-half profit, driven by growing used car and parts sales, but said the second half would be tough, especially in the sluggish new car market.
Lookers, which has over 100 dealerships selling new and used cars, on Wednesday posted an adjusted pretax profit of 17.6 million pounds ($28.9 million) for the six months to the end of June, on revenue 16 percent lower at 870.4 million.
The firm, which recently raised 80 million pounds in a share sale, said its new car sales fell 26 percent in the first half, despite the government's "cash for bangers" scheme.
"Used cars, parts and aftersales are going really well but we are still cautious on the new car market. We saw a small uplift in new car sales in July but it is still being impacted by weak consumer confidence and fear of unemployment," Chief Executive Ken Surgenor told reporters on a conference call.
Lookers' used car sales rose 8.5 percent in the first half due to a strong recovery in prices since the end of 2008 and said its parts business grew profit by 16 percent.
Shares in Lookers, which have more than tripled this year after plunging 80 percent in 2008, were flat at 68.5 pence by 0720 GMT, valuing the group at around 260 million pounds.
"Reflecting the strength of this performance we raise our full-year pretax profit forecast on Lookers to 24.2 million pounds from 18.9 million," said Numis analyst Nick Coulter.
New car sales in Britain rose 2.4 percent on the year in July, helped in part by the government's scheme to give motorists a 2,000 pound discount on new vehicles when they trade in one more than 10 years old.
The initiative is due to end in February 2010, but Lookers wants to see it extended.
"The scrappage scheme has helped, and we would like it to continue into next year. We have had around 3,500 orders from it so far, 55 percent of which have been delivered," said Surgenor.
Car manufacturers and retailers have been hit hard by a plunge in sales in the economic downturn.
U.S. giant General Motors filed for bankruptcy in June, while British dealer Inchcape has cut jobs, shut loss-making businesses and raised around 250 million pounds in a deeply discounted share sale to stay afloat.
However, British car dealer Pendragon said on Tuesday the downturn in the UK car market had eased and that the worst appeared to be over.
Lookers said it would not pay an interim dividend, having paid out 1.6 pence per share a year ago, but said it would return to making a payout this time next year. (Editing by David Holmes/Will Waterman) ($1=.6093 Pound)