Microsoft Corp posted a better-than-expected 35 percent jump in quarterly profit, lifted by sales of Windows 7, but its shares fell about 5 percent as investors expected more from a recovering technology sector.

Tech leaders Intel Corp and Apple Inc both smashed Wall Street estimates in recent weeks, elevating expectations that the world's largest software company would do the same.

Maybe people's expectations were a little bit higher than Microsoft's numbers, said Toan Tran, analyst at Morningstar. Tech earnings have been pretty strong, and with lots of strength in the PC market, the stock has come up quite a bit recently, so it might be people having too high expectations.

The company's stock has risen 14 percent since the market's dip in early February, hitting a two-year high in intraday trading on Thursday, compared to a 20 percent rise in the Nasdaq.

Microsoft reported a net profit of $4.01 billion, or 45 cents per share, for its fiscal third quarter ended March 31, compared with $2.98 billion, or 33 cents per share, a year ago. Analysts were expecting 42 cents per share, according to Thomson Reuters I/B/E/S.

Quarterly net revenue rose 6 percent to $14.5 billion, beating analysts' average estimate of $14.39 billion.

In the third quarter, we saw a return to growth in business's hardware spending -- both PCs and servers, which was different than what we've seen over the last three or four quarters, Chief Financial Officer Peter Klein told Reuters in a telephone interview.

Klein said he expects business tech spending to recover in the latter half of 2010 and into 2011. I'm not calling a boomerang, but I think this kind of growth that we are seeing probably sustains through the next couple of years.

Worldwide PC spending is projected to recover from recent doldrums and rise 12 percent to $245 billion in 2010, according to tech research firm Gartner. That promises to be a huge benefit to Microsoft, which provides the operating system for more than 90 percent of the world's computers.

The real benefit for Microsoft will be not necessarily when consumers buy PCs but when businesses step up to the plate and start buying PCs, 10,000, 20,000 and 30,000 at a time, said Andrew Miedler, an analyst at Edward Jones. That's when it really starts helping Microsoft more, because business PC purchases typically bring more profitability for Microsoft, because they get a more professional version of the product.

Klein did not offer any specific revenue of profit forecasts. Microsoft stopped making such forecasts in January 2009, citing market volatility.

The company deferred $305 million in revenue in the latest quarter relating to sales of its Office software suite, as it has guaranteed free upgrades to the new version of Office which is due out in May.

The amount of deferred revenue was within Microsoft's estimated $300 million to $350 million, but some were disappointed that the number was not higher, perhaps indicating a lack of excitement over the new release.

Microsoft, which cut more than 5,000 jobs last year as it looked to rein in spending, forecast $26.1 billion to $26.3 billion in operating costs for its fiscal year ending June 30. That is slightly lower than its last forecast of $26.2 billion to $26.5 billion.

Microsoft said in March it is targeting $27 billion to $27.5 billion in operating expenses for fiscal 2011, which starts in July.

The stock fell 4.7 percent in after-hours trading to $29.93 from its close at $31.39 on Nasdaq.

(Reporting by Bill Rigby; Editing by Bernard Orr)