UK real estate stocks may surge at least 20 percent in the first half as the Bank of England cuts interest rates to try to avert a recession, Morgan Stanley said.

British Land Co, Europe's largest real estate company by assets, Segro Plc, the UK's largest owner of office parks, and Brixton Plc, the country's largest industrial landlord, all rose by at least 7.5 percent after Morgan Stanley raised its rating on the stocks.

"We expect a short, sharp counter-trend rally in UK property shares," said Martin Allen, a London-based analyst at the bank, in a note to investors yesterday. "But we remain very bearish on a two-year view." Analysts led by Allen changed their rating on the stocks to "overweight" from "underweight."

Property-related shares could halve by the end of 2009 following the rally as a recession forces rents down and pushes highly leveraged investors into insolvency, Allen said. He expected the Bank of England to cut interest rates by one percentage point.

British Land rose as much as 7.6 percent and was up 65.5 pence, or 6.8 percent, to 982.5 pence at 9am in London, according to Bloomberg News.

The shares advanced more than five percent in two of the previous three days. Segro jumped as much as 8.8 percent and was 26.5 pence, 5.6 percent, higher at 500 pence. Brixton surged 8.5 percent to 332.5 pence.

Morgan Stanley raised its rating on pan-European real estate stocks to "attractive" from "cautious" and said that for the next six months, investors should be "overweight" in UK property stocks relative to the rest of Europe.

The bank's analysts downgraded Liberty International Plc, the UK's largest shopping mall owner, to "underweight" from "overweight" and cut their rating on Hammerson Plc, which has about 25 percent of its assets in France, to "equal-weight" from "overweight."

Morgan Stanley cut its ratings on four European real estate companies, lowering Unibail-Rodamco, Europe's largest property company, to "equal-weight" from "overweight."