UPDATE 2-Liberty Intl. suffers tenant failure hangover

* Says earnings under pressure due to lower income

* Reports higher occupancy, improved credit markets

* Shares up 2 pct, in line with market

(Adds detail, CEO quotes and shares)

By Sinead Cruise

LONDON, Nov 4 (Reuters) - Liberty International (LII.L) said on Wednesday its earnings power remained under pressure after last year's tenant failures and despite welcome signs of relief in Britain's recession-hit property market.

Britain's biggest mall owner, which owns much of central London's Covent Garden Market tourist hotspot and Lakeside shopping centre in Thurrock, blamed lower income from short-term relettings of space vacated by struggling occupiers and reduced returns from temporary cash holdings for a drag on its earnings.

"When you have a phoenix company emerging from administration, you don't know how well it's going to trade and therefore we'd rather have a short-term let with scope for recovery back to full market rents after a year or so," Chief Executive David Fischel told a conference call.

"This is just a pragmatic way of dealing with a short-term issue that does seem to be receding a little bit," he said, without quantifying rental discounts or impact on earnings.