Tiffany & Co posted higher-than-expected quarterly earnings on cost cuts and slightly recovering demand for jewelry, and raised its full-year outlook, sending its shares up more than 8 percent.

The jeweler said sales in various markets such as Europe, China and Australia showed modest improvement in the second quarter compared with the first quarter.

Tiffany still expects sales to decline this year, albeit at a slightly lower rate. Executives said on a conference call the forecast assumed economic conditions would not change meaningfully from their current state.

They are being conservative and not lifting expectations for the back half of the year, said Edward Jones analyst Matt Arnold. Overall, it is appropriate for them to take that mindset. I think investors like seeing management plan conservatively.

Tiffany, which reduced selling, general and administrative expenses by 14 percent in the quarter, also said it would pursue a slower pace of store expansion this year due to the recession.

While economic and retail conditions remain challenging, we were encouraged to see many stores achieving either smaller year-over-year rates of sales declines or modest sales growth compared with the past two quarters, Chief Executive Officer Michael Kowalski said in a statement.

Net profit fell to $56.8 million, or 46 cents a share, in the second quarter, ended July 31, from $80.8 million, or 63 cents a share, a year earlier.

Excluding one-time items, profit was 39 cents a share, beating analysts' average forecast of 33 cents, according to Reuters Estimates.

Net sales fell 16 percent to $612.5 million. Analysts had expected $604.9 million.

Tiffany has said its U.S. sales decline will ease a little in the second half of the year as it comes up against dismal results from a year earlier.

The company forecast full-year earnings of $1.65 to $1.75 a share from continuing operations, up from its prior forecast of $1.50 to $1.60. Analysts were expecting $1.58.

Tiffany now sees sales declining about 10 percent this year. It had earlier forecast a drop of 11 percent.

Analysts expect continued consolidation and store closings in the jewelry business to help Tiffany gain market share.

Tiffany shares were up $2.81 at $36.56 in morning trade on the New York Stock Exchange.

(Reporting by Dhanya Skariachan in Bangalore and Aarthi Sivaraman in Seattle, editing by Gerald E. McCormick, Lisa Von Ahn and John Wallace)