UPDATE 1-Shanks says waste markets steadier, no upturn yet

* H1 underlying profit down 28 pct to 16.5 pct, as expected

* On short-list for 3 UK local government contracts

* Reintroduces dividend at 1 pence a share

* Shares fall 3 pct

(Adds CEO, analyst comment, shares, detail, background)

By Mark Potter

LONDON, Nov 5 (Reuters) - Signs of a recovery in waste disposal markets are building, but a pick-up is not yet under way, British waste management firm Shanks (SKS.L) said on Thursday as it met forecasts with lower first-half profits.

"In all of our markets we've seen volumes stop declining," Chief Executive Tom Drury told reporters.

"I can't pretend any of them are materially picking up."