UPDATE 2-Mexico's homebuilder GEO cuts cash flow forecast

* New expansion tactic dents builders' FCF

* Burning through cash in H2 2011 (Recasts, adds details, comments, updates stock quote)

MEXICO CITY Oct 27 (Reuters) - Mexican homebuilder Corporacion GEO cut a 2011 forecast on Thursday to reflect a faster cash burn ahead of the launch of a government program expected to boost mortgage lending in 2012.

GEO (GEOB.MX) said it now expects negative free cash flow of between 700 million pesos ($53 million) and 1 billion pesos ($76 million) this year, compared with its previous expectation for a range of neutral to positive 300 million pesos.

The intensive cash use for most of this year is due to GEO, and other homebuilders, constructing apartment buildings before the Mexican government starts handing out mortgages to a broader base of clients, including people that are not on payrolls.

"It is difficult for us to understand the urgency for the homebuilders to invest so aggressively ahead of the program given that competition should be very low, as not any homebuilder has the operational capabilities and expertise to develop such projects," Credit Suisse said in a report.

Credit Suisse cut its rating on GEO from "outperform" to "underperform" following the company's earnings report on Wednesday. [ID:nN1E79P210]

During a conference call with analysts, GEO's management also said it expects positive free cash flow of about 1.5 billion pesos in 2012.

Shares in GEO, which posted a 1.6 percent dip in profits during the third quarter, were 2.40 percent higher at 18.77 pesos in noon trading on Thursday as global markets rallied.

On Tuesday, rival Urbi (URBI.MX) also cut its free cash flow generation estimate for the full year, citing a change in the way it buys land for developments. [ID:nN1E79O0VK].

Urbi will now use more cash than previously projected as it replaces land that could take many years to start developing with other areas ready to be used to build low-income vertical housing. Its shares rose 0.61 percent to 18.26 pesos on Thursday. ($1 = 13.14) (Reporting by Cyntia Barrera Diaz and Gabriela Lopez, editing by Gerald E. McCormick)