* Shares down 4.8 pct
* 1st-qtr orders jump 19.7 pct
* Qtrly average price of homes sold up 6.8 pct
* Number of homes sold rise 19.6 pct (Adds details from conf call; Updates shares)
By Arunima Banerjee
Feb 27 (Reuters) - Toll Brothers Inc just topped estimates for quarterly profit on Tuesday but early gains in the shares of the U.S. luxury homebuilder did not hold up in the face of broader concerns of a slowdown in the housing sector.
Shares of the company initially rose after it reported an 88 percent rise in net income and higher average home prices, before reversing course along with those of other homebuilders.
The company's shares fell 4.8 percent to $45.23 in late afternoon trading.
Concerns of rising mortgage rates and the impact of the new tax law on higher-priced homes were largely weighing on the housing sector, Moody's Investors Service Vice President Joseph Snider told Reuters.
Analysts also pointed to Commerce Department data on Monday showed the first year-on-year drop in sales of new U.S. single-family homes in five months as one of the drivers for the fall.
However, Toll Brothers, which builds homes that can cost upwards of $2 million, said it saw no sign of any impact on its customers from changes in state and local tax and mortgage deductions for homebuyers.
But some traders were more skeptical and the fall in the company's shares outpaced 1-2 percent losses for mass market builders D.R. Horton Inc and Lennar Corp.
Home sales growth in the United States is expected to ease this year as interest rates rise and middle-class Americans receive fewer perks under a Republican overhaul of taxes.
Prices are also expected to rise at double the pace of inflation and wages as supply falls short of rising demand, making housing less affordable, according to property market analysts in a recent Reuters poll.
Higher costs including labor and raw material expenses have weighed on margins in the sector and Toll Brothers forecast adjusted gross margins of 22.8 percent for the second quarter, down from 24.3 percent a year earlier.
The company said building costs in the first quarter had risen modestly, mostly driven by a $2,000 rise in lumber costs per home.
The company also tightened its full-year revenue outlook to between $6.40 billion and $7.40 billion, from $6.24 billion to $7.48 billion.
Chief Executive Douglas Yearley told an earnings call that demand remained strong and said customers were not mentioning either the tax or the mortgage deductions even in high tax states such as California, New Jersey and New York.
The Pennsylvania-based company said orders — a metric indicating future revenue for homebuilders — rose 19.7 percent to 1,822 homes in the reported quarter, boosted by growth in the Western United States, including California.
The company's average price of homes sold increased 6.8 percent to $826,000 in the reported quarter, while the number of homes sold surged 19.6 percent to 1,423 from a year earlier.
The company's net income rose 87.6 percent to $132.1 million, or 83 cents per share, partly benefiting from the U.S. tax reform. Excluding that, it earned 63 cents a share, beating average analysts' estimate of 61 cents, according to Thomson Reuters I/B/E/S.
Revenue rose 27.7 percent to $1.18 billion, slightly below estimates. (Reporting by Arunima Banerjee and Sruthi Shankar in Bengaluru; Editing by Shounak Dasgupta and Arun Koyyur)