UPDATE 2-UK's Dunelm says trade getting worse, shares fall

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

By Mark Potter

LONDON, July 8 (Reuters) - British home furnishings retailer Dunelm Group Plc (DNLM.L: Quote, Profile, Research) said business was getting tougher and predicted worse to come, as cash-strapped shoppers cut back on spending amid rising costs and a falling housing market.

Shares in the group, which trades from 89 mostly out-of-town stores, fell more than 6 percent on Tuesday to a new low of 116 pence.

Chief Executive Will Adderley told Reuters he wouldn't be surprised if analysts cut their profit forecasts for the current financial year ended June 30 2009.

But he was confident Dunelm would continue to increase market share and said it would also look to take advantage of falling property markets to step up its expansion drive.

Analyst Paul Deacon at brokerage Landsbanki said: "The market seems likely to continue to shun home-related retail stocks in the near term, (but) this consumer cycle is very likely to benefit Dunelm by throwing up much less expensive real estate opportunities for this still immature, high-return business."

Dunelm, whose products include curtains, bedding, blinds, rugs and lighting, said sales at stores open for more than a year fell 2.4 percent in the 13 weeks to June 28, the last quarter of its financial year.

This cut the rise in like-for-like sales for the full financial year to 2.5 percent.