Volkswagen shrugged off previously cautious outlooks for 2010 profit, saying a forecast-beating performance in the first five months meant it would now significantly exceed last year's results.

The positive business development was due in particular to strong demand for Group models in key markets such as Western Europe, China and North America, the company said on Wednesday.

Volkswagen sold 6.3 million vehicles in 2009, generating an operating profit of 1.9 billion euros ($2.4 billion).

It said exchange rate effects among other factors had a positive impact on profit in the January-May period of this year, adding this trend looked set to continue in June.

Volkswagen had previously made more cautious statements, with the Chief Financial Officer Hans Dieter Poetsch saying on April 29 he felt confident the group could improve sales and operating profit from the year-earlier level, but that's it.

Volkswagen shares were down 0.4 percent at 72.01 euros by 1144 GMT, outperforming the 1.6 percent decline by the STOXX Europe 600 Automobiles & Parts index .SXAP.

Last week, the company reported sales of its Audi brand rose 14.6 percent to 94,900 units in May, bringing sales growth in the first five months of the year to 21.7 percent.

Other German automakers have recently reported positive figures, too. BMW said vehicle sales rose 10.8 percent to 120,843 units in May, continuing the upward trend in sales by German premium carmakers.


The company is herewith simply acting on what analysts have been saying for a while, said one industry analyst, who asked not to be named. He said Volkswagen's performance over the past five months was simply better than anyone had expected.

Shares in auto parts maker Continental AG leapt 6.3 percent last week after Deutsche Bank upgraded its stance from hold to buy and lifted its price target from 42 euros to 50 euros, saying it sees margins at Continental recovering faster than expected.

European carmakers have seen their sales in China jump in recent months as the Asian economy overtook the United States as the world's largest car market.

Passenger car sales in China rose 26 percent from a year earlier in May. That was the slowest growth rate so far this year, but still outpaced by far the 9.3 percent drop in car sales in the European Union.

Volkswagen is planning to build a greenfield plant in south China with a maximum capacity of 300,000 units annually in the world's biggest auto market.

($1=.8101 Euro) (Editing by Simon Jessop)