Japan's Canon Inc <7751.T> raised its annual outlook closer to market expectations on Monday after posting a more than fourfold jump in quarterly profit on brisk demand for digital cameras and printers.

The result marked Canon's second straight quarter of year-on-year profit growth after eight quarters of decline and underscored a budding recovery in office equipment that is also boosting rivals Xerox Corp and Ricoh Co <7752.T>.

Canon benefited from growing demand for single-lens reflex cameras as the customer base continued to spread from professional photographers and camera enthusiasts to casual users thanks to the launch in recent years of introductory models.

Canon is the world's top maker of digital cameras ahead of Sony Corp <6758.T> and dominates the lucrative SLR segment along with Nikon Corp <7731.T>.

The demand for digital cameras continues to be strong, and chip equipment demand is also coming back, so the business environment is cyclically improving, said Kazuyuki Terao, chief investment officer at Japanese fund manager RCM Japan Co.

The trend toward yen weakness is also positive, so the business environment is good. There are few negative factors right now.

Canon said it now expects an operating profit of 360 billion yen ($3.83 billion) for 2010, up from its previous forecast of a 330 billion yen, though still short of the 371.2 billion yen consensus in a poll of 20 analysts by Thomson Reuters I/B/E/S.

Canon Executive Officer Masahiro Haga said the office equipment market had hit bottom and would recover gradually.

Steady expansion is likely for China and other Asian regions from the second quarter onwards, Haga told a news conference in Tokyo. In advanced economies the mild recovery will likely continue, though there are some worrying factors.

For January-March, the maker of IXY and EOS brand digital cameras posted an operating profit of 86.84 billion yen, up from a profit of 20.03 billion yen in the same period last year, amid the depths of the global economic downturn.

Quarterly sales jumped 10 percent to 755.5 billion yen.

Canon's result comes three days after rival Xerox posted stronger-than-expected first-quarter operating profit, driven by demand for its document management and printing services.

Ahead of the results, Canon shares closed up 3.5 percent at 4,395 yen on Monday, outperforming the Tokyo stock market's electrical machinery index <.IELEC.T>, which rose 2.6 percent.

Canon shares have gained 12 percent so far this year versus a 15.5 percent rise in the sector index. ($1=93.91 Yen) (Additional reporting by Sachi Izumi; Editing by Michael Watson)

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