Toyota Motor Corp. announced Thursday a surprise profit last quarter and trimmed its projected red ink for the year, underlining the gradual recovery under way for Japan's giant automakers.

The world's largest car company attributed the unexpected profit _ its first after three losing quarters _ to government measures around the world designed to boost sales of environmentally friendly cars and other vehicles.

It was the latest in a string of healthier reports and forecasts from rivals like Honda Motor Co. and Nissan Motor Co., adding to growing evidence that carmakers are starting to rebound after being battered by the deepest industry downturn in years.

For the July-September quarter, Toyota reported net income of 21.8 billion yen ($242 million), bucking some analyst expectations of another loss.

The result marked an 84 percent plunge from the 139.8 billion profit racked up during the same period a year ago, but was still an encouraging sign after the company posted its biggest loss ever in the last fiscal year.

Toyota said it now expected to sell more vehicles for the fiscal year through March 2010, raising its projections to 7.03 million vehicles from 6.6 million.

The revised forecast still marks a 7 percent drop from the more than 7.5 million vehicles Toyota had sold around the world in the last fiscal year, though sales were growing in Japan and the rest of Asia compared to a year ago. Like other Japanese car companies, Toyota is benefiting from solid demand in China, an auto market on track to become the world's biggest, replacing the U.S., this year.

The company, which makes the Prius hybrid and the Corolla subcompact, said sales in the last six months were proving better than earlier expectations as government efforts to attract more buyers spur global demand.

As a result, Toyota forecast a smaller loss for the fiscal year of 200 billion yen ($2.2 billion) _ less than half the 450 billion yen ($5 billion) of red ink it had predicted earlier.

Executive Vice President Yoichiro Ichimaru said Toyota made good progress on "emergency" efforts to combat its crisis by cutting costs, but acknowledged global uncertainties remained.

"We continued to make improvements in our reductions in fixed costs," he said. "In addition, demand-stimulating measures by governments worldwide have contributed to our revised targets."

If Toyota can manage the latest forecast, it would be a major improvement over the 437 billion yen loss it posted during its last fiscal year, the worst performance in the company's 72-year history.

For the latest quarter, the company recorded 4.542 trillion yen ($50 billion) in revenue, down 24 percent from the same period a year earlier.

Despite the result, Toyota is still struggling.

In a tearful news conference Wednesday, Toyota pulled out of expensive but glamorous Formula One racing, acknowledging it has to focus on its core car business.

In the U.S., it faces an investigation by federal authorities into problem floor mats, suspected of jamming the gas pedal and possibly causing crashes. A recall would affect 3.8 million vehicles, including the top-selling Camry sedan, and the probe is already endangering Toyota's pristine reputation for quality. Continued...