Volkswagen will meet its 2008 pretax profit target of 5.1 billion euros ($7 billion) a year earlier than planned as cost cuts boost results, the group said on Friday, sending its shares sharply higher.

After reporting second-quarter operating profit surged to 1.74 billion euros, far better than consensus, Volkswagen said it would significantly exceed in 2007 the previous year's figure before special items as it goes on to sell over 6 million cars for the first time ever.

The increase in unit sales and the continuous optimization of cost structures will lead to a sustainable improvement in competitiveness and our earnings power, the world's fourth-largest car maker said in a statement.

The company had previously just forecast that operating profit would probably surpass last year's pre-exceptional result, which was 4.38 billion euros.

A Reuters poll of 18 analysts had only estimated operating profit of 1.47 billion in the first half.

The news comes amid a spate of forecast-beating results from European rivals. Renault and PSA of France both expanded their first-half margins faster than expected while Fiat's car business more than doubled its quarterly trading profit.

Overall it's pleasing. It fits perfectly with the European auto story - stable growth in earnings, a trader said.

Volkswagen shares gained 2.7 percent to 123.81 euros by 0853 GMT, reversing earlier losses and outperforming moderate gains in the broader German market.

Nonetheless, VW's peers have taken a beating recently, with the European autos index falling almost 5 percent since Fiat posted results after markets closed on Tuesday as investors became more risk averse amid a credit market-related sell off.

Earlier this month, Volkswagen reported a 7.8 percent increase in first half vehicle sales to 3.09 million units, thanks mainly to strong growth in emerging markets like Asia and South America.