Oct. 26 (Bloomberg) -- Nissan Motor Co., Japan's third- largest carmaker, boosted operating profit by the most in at least three years after increasing sales in Russia, China and the Middle East.

Operating profit rose 12 percent to 218.7 billion yen ($1.9 billion) in the fiscal second quarter, the company said in a release today. Sales rose 13 percent to 2.62 trillion yen. Net income fell 27 percent after gains from asset sales and tax breaks in the year-ago period.

Chief Executive Officer Carlos Ghosn turned to developing economies after lower domestic demand forced the carmaker to cut its earnings forecast last year, an event Ghosn called a crisis. Tokyo-based Nissan won customers in Russia and the Ukraine with Qashqai sport-utility vehicles.

``Nissan reversed the trend this quarter with higher sales in many regions, especially emerging markets,'' said Takashi Aoki, who helps manage about 130 billion yen at Mizuho Asset Management Co. in Tokyo. ``Nissan looks strong.''

Last year, Nissan had tax breaks of 20.3 billion yen and second-quarter profit in the year-ago period was inflated by the sale of its stake in Nissan Diesel Motor Co. to Volvo AB.

``Our operating margin came back above 8 percent, very refreshing when you cross that line,'' Ghosn said. ``Our profit potential is increasing.'' The gain in operating profit was the most in a quarter since at least 2004, according to Bloomberg data.

The company plans to introduce 11 new or redesigned vehicles this fiscal year, including the GT-R, its most expensive sports car, which goes on sale in Japan in December.

Japan, U.S.

Nissan's sales at home slumped 7.2 percent in the first nine months of this year. Industrywide demand in the world's third- largest auto market has dropped for the past 18 months, forcing Toyota Motor Corp. and Honda Motor Co., Japan's two biggest automakers, to trim their domestic sales forecasts for this fiscal year. Honda yesterday cut its goal for domestic sales by 4.3 percent to about 660,000 units.

In the first half, Nissan's sales in Russia more than doubled, while sales in China grew 25 percent and sales in the Middle East rose 21 percent. The company has a six-month backlog for the Qashqai in Russia, the Ukraine and Northeast Europe.

In the U.S., Nissan's most profitable auto market, a 22 percent increase in gasoline prices this year drove customers to hybrids and fuel-efficient cars. U.S. gasoline prices reached a peak of $3.23 a gallon in May, according to the Web site of AAA, a U.S. drivers group.

Yen's Effect

The yen's weakness against other currencies contributed 48.6 billion yen in the first half, due mainly to ``favorable movements'' between the yen and dollar, Nissan said. Economists for General Motors Corp., Ford Motor Co. and Chrysler LLC this week called on Japan to stop supporting a weak yen that U.S.- based carmakers claim artificially boosts Japanese automakers' profits.

Nissan based its first-half earnings on exchange rates of 119 yen to the dollar and 162 yen per euro, compared with 115 yen and 142 yen a year ago.

In the second half, the Japanese currency will probably trade around the current level, Ghosn said. The yen traded at 114.39 to the dollar as of 5:06 p.m. in Tokyo.

Versa, Altima

Nissan increased U.S. sales of the Versa by more than fivefold and those of the Altima by 22 percent in the first nine months. In contrast, sales of Xterras and Pathfinders fell 17 percent and 12 percent, respectively, in the same period, according to Autodata Corp.

``Nissan may be able to revive earnings later this year by offering more fuel-efficient cars in the U.S.,'' said Masayuki Kubota, who oversees $2.1 billion in assets at Daiwa SB Investments Ltd. in Tokyo.

Ghosn, who also heads Renault SA of France, gave up daily oversight of Nissan's North American operations in April, as he tries to focus on improving performance at the two companies. Renault owns 44.3 percent of Nissan.

Nissan expects net income of 480 billion yen on sales of 10.3 trillion yen for the year ending March 31, it reiterated today. Operating profit, or sales minus the cost of goods sold and selling, general and administrative expenses, may total 800 billion yen, the company said.

The company's shares rose 3.2 percent to 1,124 yen at the 3 p.m. close on the Tokyo Stock Exchange. The stock has lost 22 percent this year.

Honda yesterday said its second-quarter profit rose 63 percent because of higher sales of fuel-efficient models in the U.S. and a weaker yen. It raised its full-year profit forecast.

Hyundai Motor Co., South Korea's largest automaker, also yesterday reported a 45 percent gain in its third-quarter profit after a labor accord reduced disruptions from striking workers.

Toyota, Japan's biggest automaker, is scheduled to report earnings on Nov. 7.

To contact the reporters on this story: Naoko Fujimura in Tokyo at nfujimura@bloomberg.net; Tetsuya Komatsu in Tokyo at tekomatsu@bloomberg.net

Last Updated: October 26, 2007 05:18 EDT