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UPDATE 4-Volvo Q2 tops forecast, ups Europe truck sales view

(Adds chief executive comment, updates share price)

By Simon Johnson

STOCKHOLM, July 21 (Reuters) - Volvo , the world's second largest truck maker, trounced profit and sales forecasts for the second quarter in a row and raised its estimate for European truck sales this year, sending its shares higher.

Citing strong demand in all its business areas as global economic growth improves, the Swedish firm reported a pretax profit of 3.7 billion Swedish crowns ($498 million) for April-June against analysts' average forecast of 2.86 billion, and 2.04 billion in the same period last year.

"They are reaping the fruit of the work they have carried out over the last two to three years of streamlining the cost base and reducing capacity," said Michael Raab, analyst at Sal Oppenheim.

"And on the other hand most of the divisions are confronted with a positive development in demand ... They have laid the foundation for a good financial performance in the second half of the year."

Shares in Volvo, which also makes boat and aircraft engines, buses and construction equipment, were up 3.7 percent at 267.50 crowns at 1110 GMT. Stockholm's blue-chip index was up 3 percent. Sales for the group, which includes other units such as aerospace, were 53 billion crowns, beating analysts' expectations of 50.2 billion and compared with 44.6 billion in the second quarter of last year.

Truck sales over the latest quarter totalled 34.9 billion crowns with operating margin for the key division at 6.6 percent against a forecast of 5.6 percent.

Volvo raised its forecast for overall truck sales in Europe for the year to 250,000 trucks from around 230,000. Its own sales in Europe are twice as much as those in the United States in terms of value.

"After two years of declines, the European market is on the way up, but we are far from normal levels," Chief Executive Leif Johansson said in a conference call.

Volvo held its forecast for truck sales in North America at between 230,000 and 240,000 units for 2004.

RECOVERY

Commercial vehicle makers have enjoyed a strong start to the year and expect higher demand to continue through 2004.

Earlier this month, Germany's car industry association forecast world commercial vehicle sales up six percent over the year. Volvo's rivals have also signalled a rebound.

The incoming chief executive of Germany's MAN AG said earlier this month the group would post a 10 percent rise in revenue from its trucks business in the first half.

Sweden's Scania raised its outlook for the year after a stronger-than-expected first quarter.

Volvo had almost quadrupled its pre-tax profit in the first three months of the year to 2.88 billion crowns, boosted by higher growth in its core markets and cost savings from its acquisitions of Renault and Mack trucks in 2001.

Since the start of the year Volvo shares have risen more than 20 percent, outperforming the DJ European autos index by around 19 percent.

(Additional reporting by Jerker Hellstrom, Niklas Pollard, Kristopher Andersson)