Japan's Canon Inc posted a 72 percent fall in quarterly profit, hit by sluggish demand for office copiers, but nudged its full-year forecast higher on a firmer than expected yen and more aggressive cost cuts.

Canon has benefited from solid demand for high-end cameras, helping cushion the blow from weak sales of copiers and printers as companies worldwide rein in spending on office machines in a tough economic environment.

The company, the world's largest digital camera maker ahead of Sony Corp and Nikon Corp, raised its 2009 operating profit forecast by 6 percent to 190 billion yen ($2 billion) to reflect more favorable assumptions on currency rates.

The maker of EOS and IXY brand digital cameras also said it now aimed to cut 220 billion yen in costs this year, a 28 percent increase on its previous target of 172 billion yen.

The new profit forecast is higher than the consensus estimate for a 174 billion yen profit in a poll of 18 analysts by Thomson Reuters, thought it still marks a 62 percent fall from 2008.

The results confirm that the company is able to offset the deterioration of the copier and printer business with its consumer businesses, namely digital cameras, said J.P. Morgan analyst Hisashi Moriyama.

Canon's profit structure is different than that of a pure office equipment maker.

Canon's results come after rival Xerox Corp beat quarterly profit estimates last week, helped by cost cuts, but cautioned that a slowdown in office equipment spending would pinch revenue for the remainder of the year.

Canon competes with Xerox, Ricoh Co Ltd and Konica Minolta Holdings Inc in copiers and printers.

Canon's operating profit was 44.91 billion yen in April-June, down from 160.15 billion yen a year earlier, but up from a 20 billion yen profit in the previous quarter, a sign that Canon's quarterly earnings may have bottomed out.

Canon revised its assumption for the euro/yen rate to a more favorable 130 yen from 125 yen for the second half, while leaving its dollar/yen assumption at 95 yen.

The global economy is expected to gradually improve in the second half but market conditions are still tough and we don't expect a full-fledged recovery this year, Canon Managing Director Masahiro Osawa told a news conference.

Prior to the announcement, shares in Canon closed down 0.3 percent at 3,370 yen, outperforming the Tokyo stock market's electrical machinery index, which fell 1 percent.

By Monday, Canon shares had risen 20 percent since April versus a 28 percent rise in the subindex.

($1=95.00 Yen)

(Editing by Michael Watson)