Toyota Motor Corp on Thursday lifted its cautious guidance for the financial year to March despite escalating recall troubles that threaten to derail a recovery at the world's biggest automaker.

Toyota's recall of more than 8 million vehicles due to problems with unintended acceleration has punished its share price, hurt its reputation and overshadowed what until just two weeks ago had been expected to be an upbeat story of improving earnings.

Helped by government incentives to boost sales, Toyota posted an operating profit of 189 billion yen ($2.1 billion) in the three months to December, easily beating the 99 billion yen estimated in an average of three brokerages polled by Thomson Reuters I/B/E/S.

With less than two months left in the current financial year, Toyota slashed what most analysts had considered an excessively conservative operating loss forecast to 20 billion yen from 350 billion yen.

That compares with an 38 billion yen annual loss forecast in a survey of 19 brokerages by Thomson Reuters I/B/E/S.

Starmine SmartEstimates, which predicts earnings by putting more weight on recent forecasts of top-rated analysts, has Toyota posting an operating profit of 26 billion yen this year, and improving to 647 billion yen next year.

Shares in Toyota have lost as much as 23 percent in the last two weeks since it announced a multi-million-vehicle recall for sticky accelerator pedals, underperforming a 2.7 percent drop in Tokyo's TOPIX index.

($1=90.89 Yen)

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