Toyota Motor Corp shares soared on Wednesday after a U.S. government report gave its cars a clean bill of health and a better-than-expected profit outlook helped the world's largest automaker put a dismal year behind it.

The stock jumped 5.2 percent to a nine-month high, making it the biggest percentage gainer on the Nikkei 225 index.

The numbers were good. The second thing was the U.S. report which says there are no problems with Toyota electronics. It was a double header, said Chris Richter an auto analyst with CLSA Asia Pacific Markets in Tokyo.

This is still a work-in-progress and they have a lot of things to fix, but if things are getting better I want to get in Toyota now when things are still bad, he added.

Posting a smaller-than-expected fall in third-quarter operating profit Tuesday, Japan's biggest company raised its prediction for the full year by 45 percent to 550 billion yen ($6.68 billion) saying stronger sales in Asia and lower costs were boosting profitability.

U.S. transport officials later added to the car maker's cheer by clearing its electronics of causing cars to accelerate unintentionally. The findings vindicated Toyota's claim that it had identified and fixed the only known safety problems with popular vehicles like the Camry.

The problem they had in the US seems to be over and they don't have a big problem at the moment with the management of the company and the product, said Yuuki Sakurai, president of Fukoku Capital Management in Tokyo.

CAUTION ON HOME WOES

For Toyota's boss, Akio Toyoda, who broke down and cried in front of his U.S. employees last year amid a tsunami of car recalls that in the past year have amounted to about 14 million vehicles, it provides relief from shareholder pressure to mend the automaker's earnings engine.

Toyota still has a challenge competing against its rivals in emerging markets, but there are hopes that it can regain its market share in the U.S. market, said Mitsushige Akino, a fund manager at Ichiyoshi Investment Management. Toyota's lifting of its annual outlook was a source of relief for investors, he said.

Investors and analysts, however, caution that for Toyota, which just stayed ahead of General Motors Co as the world's biggest automaker last year, the next chapter in its recovery could be tougher still.

Unlike its nearest domestic rival, Nissan Motors Co., Toyota has been slow to tackle money-losing production at home that is squeezing overall profitability.

The policy of Nissan is that they are not interested in making their own cars anymore, they have tie-ups with other car manufacturers like Mazda Motor Corp or Mitsubishi Motors Corp. It means they don't really care where the car comes from, said Fukoku Capital's Sakurai.

The titan of Japan's auto industry still makes 43 percent of all its cars in Japan, most of those in or near a small city in central Japan that named itself Toyota City after its biggest employer.

Nissan's own home output is a much smaller 28 percent, while Honda Motor Co makes an even smaller 27 percent of its cars in Japan. That means they are far less vulnerable to the profit sapping impact of a strong yen.

Yet, says, CLSA's Richter, matching its two rivals will be far tougher for Toyota. They will become a lightening rod. If they thought they had political fall out in the U.S. from the recall crisis, wait till if they ever start monkeying around with jobs in Japan.

Toyota climbed 180 yen to 3,670 yen. The Nikkei average was down 0.17 percent.

($1=82.35 Yen)

(Additional reporting by Chang-Ran Kim, Ayai Tomisawa and Isabel Reynolds; Editing by Edwina Gibbs and Muralikumar Anantharaman)

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