Dow Chemical Co posted a surprise first-quarter profit on Thursday, helped by cost reductions, gains in its agricultural segment and lower raw material costs, sending its shares up as much as 20 percent.

In a conference call, Chief Executive Andrew Liveris said he was looking at partnerships in Kuwait similar in scope to Dow's failed K-Dow venture with an investment arm of the country's government and is planning to sell or spin off the company's high flying agricultural unit.

Earlier in the day, Dow, the second-largest U.S. chemical company behind DuPont

in terms of market capitalization, reported net income of $24 million, or 3 cents a share, down from $941 million, or 99 cents a share, a year ago.

Excluding items, Dow earned 12 cents a share, compared with the loss of 20 cents expected by analysts, according to Reuters Estimates.

Sales fell 39 percent to $9.09 billion, while the analysts' average forecast was $11.61 billion.

It all comes down to cost management. Most people thought that their revenues will decline more rapidly than their costs. And to me that was the biggest source of the beat, Analyst Hassan Ahmed of HSBC Securities told Reuters.

Chemical companies have been hurt by the weakening economy as demand from industries they supply, such as autos, housing and electronics, has fallen drastically.

In December, Dow said it would close 20 facilities, divest several businesses and cut 5,000 jobs to deal with the global slump.

Since December we have delivered about half of the 5,000 commitment to reduce our global workforce, and we are 17 percent ahead of our planned savings, Liveris said.

The company said it had cut spending by $270 million in the quarter from a year earlier, and that purchased feedstock and energy costs were down 49 percent.

DIVESTITURES

Dow has been under pressure to sell assets and raise much-needed cash following it acquisition of Rohm and Haas.

The company agreed to buy Rohm and Haas last year but balked after the $17 4 billion K-Dow venture with Kuwait fell apart.

That acquisition was completed earlier this month after Rohm and Haas sued Dow.

On the same day of closing the acquisition, Dow sold the Rohm and Haas salt business, Morton Salt, to Germany's K+S AG in a $1.68 billion deal that it expects to close in mid-2009.

Dow said it was also planning to divest Rohm and Haas' powder coatings business, and several other businesses including the agriculture business.

The agriculture business has been the most steady in Dow's portfolio and has helped stabilize earnings over the last several quarters.

What I am confused about is that they emphasized they wanted to make their business all around more stable and less volatile, Morningstar analyst Annie Sorich told Reuters.

So if that's the long term goal then divesting the agro science business does not make sense.

However, Sorich noted that agro science is the only bright spot in the economy at this point and selling the agro science business will be the right thing to do if the company gets a good price.

Dow said the total value of all the previous and planned divestitures would be about $25 billion.

The company also said it was looking at new partnerships in Kuwait.

While outreach and dialogue continues with our Kuwaiti partners, there are other parallel negotiations that are ongoing with two other state-owned resource owners on an equivalent basis with a similar scope of the original K-Dow venture, CEO Liveris said.

CAUTIOUS APPROACH

The company said there are some signs that the pace of global economic decline is moderating but noted that it was not counting on material improvements in economic conditions in the near term.

We believe the rate of decline of the key economic indicators such as industrial production and consumer spending has in fact slowed, CEO Liveris said in the conference call.

However, lower business spending, weak manufacturing activity, and growing unemployment warrants a cautious approach in the near term, he added.

Liveris also said he is hopeful that there will be a return to positive growth in the United States in the second half of 2009 as economic stimulus spending ramps up.

Shares of Dow were trading up 16.6 percent at $15.75 on the New York Stock Exchange. They were up about 20 percent and touched a high of $16.19 earlier in the day.

(Editing by Derek Caney, Lisa Von Ahn, Dave Zimmerman and Steve Orlofsky)