Honda Motor Co <7267.T>, Japan's No.2 automaker, forecast a 10 percent rise in operating profit this year as demand in its biggest and most profitable U.S. market recovers from a multi-decade low.

Honda, also the world's top motorcycle maker, is well positioned to gain from a steady rise in U.S. sales with its fleet of fuel-efficient models, which will see the addition of the CR-Z sporty hybrid in North America in a few months.

Overcapacity in Europe as sales sink in the absence of government subsidies remains a drag, but analysts expect strong growth in China and other Asian markets to keep Honda on track to expand its profits and outperform its domestic rivals.

For the year to end-March 2011, the maker of the Civic and Accord models forecast an operating profit of 400 billion yen ($4.3 billion), up from the 363.8 billion yen it made in the year to March 2010. It sees net profit growing 27 percent to 340 billion yen this year, after a near doubling last year.

Honda, the first big Japanese automaker to report fourth-quarter results, is expected to have booked the biggest profits in 2009/10 among its peers, helped by a lucrative and fast-growing motorcycle business.

Operating profit for the January-March quarter just ended was 96.1 billion yen, compared with a loss of 272.1 billion yen a year earlier, when it cut back production to reduce inventory.

The result was slightly higher than the 94 billion yen average estimate in a poll of 19 brokers according to Thomson Reuters I/B/E/S.

Fourth-quarter net profit came to 72.2 billion yen versus a loss of 180 billion yen a year ago.

HYBRID HURDLES

In the medium term, Honda CEO Takanobu Ito, a 32-year company veteran and former chassis designer, will be under pressure to speed up development of a new, more fuel-efficient hybrid system to power its bigger vehicles to compete with Toyota Motor Corp <7203.T> and a growing number of automakers launching full hybrid cars.

Honda's one-motor hybrid system has the advantage of being simple and cheaper, but lacks the power to be mounted on anything bigger than a CR-V crossover.

Shares in Honda have gained 6.4 percent in the year to date, outperforming a 1.2 percent rise in Tokyo's transport subindex <.ITEQP.T>. Before the results, Honda ended down 1.5 percent, while the sector index fell 1.2 percent.

(Reporting by Chang-Ran Kim and Lincoln Feast; Editing by Ian Geoghegan)

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