Nissan Motor Co's <7201.T> quarterly profit fell 15 percent on a stronger yen and sliding Japanese demand, but the decline was the slimmest among local automakers and it lifted its outlook on growing overseas sales.

Nissan, which overtook Honda Motor as Japan's second-biggest automaker last year, has been a standout particularly in China, where a lineup of small cars that qualified for tax incentives fueled 36 percent sales growth last year.

It was also among the few brands to grow in the tepid European market, helped by the new Juke crossover and the older Qashqai SUV.

For the full year to March 31, Nissan, owned 43 percent by France's Renault SA , raised its operating profit forecast to 535 billion yen ($6.50 billion) from 485 billion yen, matching the projection in a survey of 26 analysts by Thomson Reuters I/B/E/S.

It lifted its global sales forecast by 65,000 units to 4.165 million vehicles for the year, mainly on better-than-expected sales in China in the last quarter.

Third-quarter operating profit fell 15 percent to 114 billion yen, also smack in line with an average estimate of 113.9 billion yen in a Reuters poll of eight analysts. Net profit jumped 78 percent to 80.07 billion yen.

Nissan's profits made in China are counted at the operating level, unlike those of Toyota Motor Corp <7203.T> and Honda Motor Co <7267.T>, because it reports under Japanese accounting rules.

COMPETITION TO HEAT UP

Chief Executive Carlos Ghosn has aggressively pushed Nissan into fast-growing markets such as China, India and Russia, and is credited for raising its profile as a pioneer in electric cars with the launch of the Leaf, the world's first mass-volume electric vehicle, in December.

In the third quarter, Nissan's global retail sales grew 15 percent, bringing its 2010 tally to a record 4.08 million units and ahead of Honda for the first time since 2005. It sold a quarter of that in China, making the country's its single-biggest market for the first time.

But a slowdown in China's overall car demand could hit Nissan the hardest after the government pulled the plug on incentives on cars with engines smaller than 1.6 liters such as its Tiida model, at the end of 2010.

Corporate Vice President Joji Tagawa said, however, that Nissan expected to continue growing at a fast clip of 12 percent, taking its Chinese sales to 1.15 million units this year.

We expect a more sustainable growth in the overall Chinese auto market this year, he told a news conference, saying growth of about 30-40 percent seen in the past few years was not necessarily healthy.

Tagawa said China will continue to be a crucial market for Nissan, both in terms of sales volume and profit, adding that a broad model line-up and a big presence in the fastest-growing inland markets would help the brand grow faster than rivals.

Fujio Ando, an adviser at Chibagin Asset Management, said rising incomes in China would likely help offset the negative impact from the end of tax incentives.

Nissan has also outperformed in the U.S. market but is set to face tougher competition this year as Toyota and Honda remodel top-selling cars such as the Camry and Civic.

While analysts are bullish on Nissan's near-term growth prospects, Ghosn is under the gun to provide a clearer direction for partner Renault, which has struggled due to its heavy reliance on Europe. Ghosn is set to announce a new strategic six-year plan for Renault on Thursday.

The Renault-Nissan alliance's all-out drive into the electric vehicle (EV) segment is a centerpiece of its growth strategy, but sales are not expected to reach critical mass until for another five years, contributing little to their near-term earnings.

Honda and Toyota also raised their profit forecasts for this year. Toyota's shares soared 5.2 percent after its earnings announcement on Tuesday and after it was cleared in a U.S. government safety probe.

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