Shares of Cisco Systems Inc surged 17 percent on Thursday, a day after it forecast a modest increase in current-quarter revenue, following months of uncertainty surrounding its business.

The Internet networking gear maker's shares, which have lost a third of their value since the beginning of 2011, jumped to $16.06 in morning trade, making it one of the biggest gainers on Nasdaq.

Almost 85 million shares had changed hands by 1005 ET on Thursday.

Cisco's third-quarter revenue forecast of 1-4 percent growth was in line with the market consensus, but relieved investors applauded the outlook that signaled a possible recovery.

CEO John Chambers, who in April famously said Cisco had lost its way, on Wednesday said he expects gradual improvement in the business, but again warned of a challenges for global public sector spending in coming quarters.

Brokerage Stifel Nicolaus, which raised its rating on the stock to buy from hold, said Cisco seemed to have left the worst behind.

Although the macro environment and public sector spending could continue to put pressure on switching and overall sales, the company is starting to see some stability in orders, the brokerage said in a research note to clients.

Cisco, which depends on government spending for about a fifth of its revenue, said in July it would cut 15 percent of its workforce and sell a set-top box factory in Mexico as part of an effort to slash annual expenses by $1 billion.

We are encouraged by the apparent improvement in order rates, ex-Government, and the company is clearly tracking to its reduced opex target, Canaccord Genuity said in a research note.

The brokerage, however, reduced its price target on Cisco's stock to $17 from $20. It maintained its hold rating.

(Reporting by Sayantani Ghosh in Bangalore; Editing by Viraj Nair)