McDonald's Corp reported a stronger-than-expected sales rebound in January in Europe, its biggest market for revenue, sending its shares up 3 percent in midday trading.

Sales at restaurants in Europe open at least 13 months jumped 7 percent last month, well above the 3.7 percent analysts had expected.

This was also a significant improvement from December, when sales in Europe fell 0.5 percent, rattling investors who worry that austerity measures will cut into spending in the region that contributes about 40 percent of McDonald's revenue.

Oppenheimer analyst Matt DiFrisco said the strength in Europe increased confidence.

McDonald's ability to deliver strong results in a difficult operating environment in Europe is reassuring since the region has been a recent focus of concern, DiFrisco said.

McDonald's attributed the outsize gain in Europe to strong results in Germany, Britain, France and Russia.

The world's biggest hamburger chain also said new products, longer store hours and refurbished restaurants helped bolster results.

They have exposure to the stronger markets in Europe, Morningstar analyst R.J. Hottovy said, adding that McDonald's is still an inexpensive meal option.

Major rivals to McDonald's do not report monthly sales, so investors have to wait for quarterly results to determine how the company is performing versus its peers.

Jefferies analyst Andy Barish expects McDonald's to have same-restaurant sales gains in 2011, but it will continue to be important to monitor the European government austerity measures and their impact on the economies.

With a new value-added tax expected in Britain, we will be interested to see how this might impact consumer spending habits in this key region, Barish said in a client note.

Worldwide, McDonald's January same-restaurant sales were up 5.3 percent, above the 4.4 percent analysts had expected.

In the United States, where high unemployment continues to weigh on the fast-food business, sales rose 3.1 percent. That was below the 4.4 percent gain analysts had expected but better than the 2.6 percent rise reported in December.

Given where we are in the economic recovery, the result is good, said Peter Jankovskis, co-chief investment officer at Oakbrook Investments.

The company's broad menu -- which offers low-priced and premium food and drinks that appeal to people of all ages -- has helped it outperform rivals that tend to focus on young males, who have been hit particularly hard by job cuts.

McDonald's said hot chocolate and caramel mochas as well as its new hot oatmeal contributed to the January sales increase in the United States, which accounts for about 35 percent of company revenue.

Sales in the Asia/Pacific, Middle East and Africa unit rose 5.2 percent, above the 4.6 percent analysts had expected. Results in the region benefited from menu items tailored to local areas, low-priced food and convenience efforts such as drive-thrus.

In December, APMEA's same-restaurant sales jumped 8.9 percent.

Shares of McDonald's were up $2.19 to $75.64 on the New York Stock Exchange. Rival Wendy's/Arby's Group was down 1.4 percent.


Restaurants companies like McDonald's and Starbucks Corp are either raising prices or planning such moves to help cover higher costs for items such as beef, produce, dairy and coffee. It remains to be seen whether diners will accept the higher prices.

McDonald's already has announced price hikes in China, where food prices have spiked. Analysts expect the company to make modest and selective price increases in other parts of the world this year.

I think they have a better chance of doing it than most, said Jankovskis, adding that McDonald's also works closely with its suppliers and is capable of containing some cost increases that way.

They can balance those two out, Jankovskis said.

(Editing by Derek Caney, Lisa Von Ahn and John Wallace)