DIAMOND prices have increased by nearly one third this year, driven by soaring demand for precious stones from China and India.

The steep rise has enabled the world's largest diamond miner to announce record first-half sales and a remarkable turnaround only two years after diamond prices collapsed and it was forced to seek a $US1 billion ($912 million) bailout from its shareholders, which include Anglo American.

De Beers said yesterday Tuesday that its sales in the first six months of the year had risen by 30 per cent to $US3.9bn, while pre-tax profits rose 55 per cent to $US1.2bn.

"Sales during the period have been exceptional, driven mainly by continued growth in the Middle East, Indian and Asian retail markets, and their impact on rough price growth," it said.

The market is being driven in part by a supply-shortage, as significant diamond discoveries have been scarce for more than a decade. Meanwhile, there has been a steadily growing appetite from the newly affluent in markets such as India and China to own the gems. This has more than offset sluggish demand from Europe and the US.

Kieron Hodgson, an analyst at Charles Stanley, said in a recent research note: "The retail market continues to offer a schizophrenic view of the world. On the one hand, there are fears of US and European debt contagion and, on the other, the substantial growth opportunities offered by maturing Chinese and Indian economies."

Mr Hodgson has estimated that the price of rough diamonds rose by 32 per cent across the mining industry in the first half. A shortage of polished stones resulted in price rises of 32.5 per cent - the first time since 2008 that polished stones outpaced rough stones.

The outlook for the second half of the year remains uncertain, given the global economic problems.

De Beers argued yesterday that trade shows had indicated strong demand before Christmas and the Indian festival of Diwali: "Despite the ongoing turmoil with the global economy, we are encouraged by the continued strong growth in price and demand during the first six months of 2011. De Beers is confident that the exceptional growth in retail markets in India and Asia will continue to drive demand for diamonds."

Mr Hodgson, however, believes that prices could stabilise over the next few months: "We expect a pause for breath over the (northern) summer as global macro headwinds and increasing supply temporarily reduce price tension."

The increase in supply will come from Zimbabwe, from where diamonds are expected to be sold to international buyers for the first time in two years.

African countries have decided to lift the ban on exports but this is being resisted by Western governments. A final decision is expected this year.