first-half pretax profit rose three percent as growth in its cruise liner unit and higher property receipts offset a drop in its English Channel ferry business.

The profit was better than expected, reversing a six percent decline in P&O's earnings in 1995 that came amid a frenzy of price-cutting in the ferry market to counter Eurotunnel, the two-year-old operator of the Channel Tunnel.

Still, most of the recent period's gains came from a sevenfold increase in property development earnings. Analysts said they're still waiting to see whether P&O can meet its goal of allying with a rival to cut capacity across the Channel.

In the meantime, the company warned that the second half would be difficult.

"The big question, which you won't find answered today, is what they're going to do on rationalising the Dover-Calais routes,'' said analyst Tony Shepard with Greig Middleton & Co. "People will be focusing on that.'' P&O is Britain's biggest ferry company, with 23 ships serving four countries.

Its passenger cruise unit owns the Princess line, and its interests include property, shipping, construction and exhibition centers.

Pretax profit, excluding one-time gains from asset sales, rose to 130.2 million pounds ($201 million) in the six months ended June 30, from 126.2 million pounds in the year-earlier period.

The figure exceeded analysts' expectations for before-items profit of about 115.2 million pounds. The range was between 110 million and 118 million, according to a Bloomberg survey.

P&O said it had taken a first step toward a ferry alliance by agreeing to buy Royal Nedlloyd NV's 50 percent share of their North Sea Ferries venture for 25.25 million.

It said the move would save 5 million a year as it sheds 100 of the company's 1,700 workers by integrating two ports. North Sea Ferries, a 50-50 venture with Royal Nedlloyd since 1981, runs 10 ships between the UK, Belgium and the Netherlands.

P&O said it's looking for an alliance in the Dover-Calais route, a path open to it since the UK government three months ago lifted restrictions that had prevented ferry operators from merging or pooling services.

Chairman Lord Sterling said he last week held talks with all of P&O's rivals, which include Stena Line Ltd.'s Sealink, Bermuda-based Sea Containers Ltd.'s Hoverspeed and Sea France. He said he wants to seal a pact within months, which would be in time for the lucrative summer season next year.

"Without question, it's going to happen,'' Sterling said at a London press conference. "Everyone now realises it can't go on the way it is.'' Time is short, he said, because reviews by antitrust authorities in the European Union and Britain would take about four or five months.

He said a joint venture, which could lead to cutting capacity by as much as a third, would mean "serious, serious money'' in cost savings. Removing one ship saves between 15 million and 20 million, he said.

The alliance would be the followup to P&O's announcement last week that it would merge its container shipping unit with Royal Nedlloyd's, creating the world's third-largest shipper and saving $200 million a year.

P&O's stock surged as much as 16.5 percent, to 600.5 pence, after it announced the agreement on Monday. Trading as high as 741 pence in 1994, the stock lagged the FT-SE 350 Actuaries index by 29 percent last year.

Today, it slipped 2 pence to 592.5p.

Greig Middleton's Shepard said he rates the stock a "hold'' until the company addresses the problems in the ferry business, where profit slumped to 500,000, from 24.8 million in the year-earlier period.

The Channel business lost money as it carried 12 percent fewer tourist vehicles and six percent less freight on the Dover-Calais route in the period.

P&O has about 30 percent of that market, while Eurotunnel has 40 percent.

Sealink has 18 percent, Hoverspeed six percent and Sea France five percent.

"Investors need a bit of comfort on that before the shares go any higher,'' he said. The property earnings, he said, "tend to be lumpy'' and aren't necessarily indicative of long-term growth.

Clive Anderson, a transport analyst with Merrill Lynch, said in a research note that he upgraded his rating on the stock to "accumulate'' on the higher-than-expected property development income and a lower tax charge of 25 percent.

He raised his 1996 earnings estimate by 12 percent to 38.9 pence per share, from 34.8p, and the 1997 estimate by 10 percent to 44.4p.

Property development income soared to 29.3 million pounds, from 4 million in the year-earlier period.

Managing director Sir Bruce MacPhail said the business benefited from an upturn in the property market in Germany, the US and the Netherlands as it completed projects such as the CentrO shopping complex in Oberhausen, Germany.

He said the unit's profit, which totaled 25.4 million in all of 1995, should be "reasonable'' in the second half, though he "certainly won't promise'' that it matches the first-half total.

The cruise unit's operating profit rose 40 percent to 67.5 million, from 48.2 million, as demand and fares both rose.

Profit in the bulk shipping unit, which runs 20 dry bulk carriers and 17 petroleum tankers, fell to 2.6 million, from 10.3 million, as rates fell.

MacPhail said they should rise again late in 1997 because more ships are being scrapped worldwide this year, taking about 4.9 million tons of capacity out of the market already in the first half, compared with 2.5 million tons in all of 1995.

Still, the company warned that the depressed markets in ferries, bulk shipping and containers would hit results in the second half.

In container shipping, profit rose to 20.9 million pounds, from 15 million, though P&O said rates would come under tougher pressure in the second half.

P&O's container ships are registered in Bermuda.

P&O said it's on track in its plans to spin off Bovis Homes, its UK homebuilding unit, sometime in 1997 and has so far sold two-fifths of the 500 million of property assets it's seeking to sell by 1998.