March 8 (Bloomberg) -- Bayerische Motoren Werke AG, the world's largest maker of luxury cars, said fourth-quarter profit rose 17 percent on demand for the X5 sport-utility vehicle and 3-Series sedan and the sale of a stake in a plane-engine maker.

Net income increased to 687 million euros ($904 million) from 589 million euros, said BMW spokesman Mathias Schmidt. Earnings were more than the 583 million-euro estimate of analysts surveyed by Bloomberg News.

Chief Executive Officer Norbert Reithofer introduced new versions of the X3 and X5 SUVs and the Mini late last year to counter models from DaimlerChrysler AG's Mercedes-Benz including the C-Class sedan, which competes with BMW's 3-Series. The Munich-based carmaker, which increased its dividend 9.4 percent, expects sales to rise to another record in 2007.

``Across the whole product range they certainly have sufficient models to keep demand growing this year,'' said Stephen Pope, an analyst at Cantor Fitzgerald in London who has a ``buy'' rating on the stock. ``They're saying that they never want to let go of being the number one premium carmaker.''

Shares of BMW rose as much as 1.19 euros, or 2.8 percent, to 43.69 euros and were up 0.6 percent at 3:30 p.m. in Frankfurt, valuing the company at about 28 billion euros. The stock is little changed this year.

Vehicle sales in the fourth quarter increased 3.8 percent to 352,436 units, while revenue gained 2.5 percent to 12.6 billion euros.

`Best Year'

``The past year has been the best financial year so far in the company's history,'' said Reithofer in the statement. The company proposed to increase the dividend 9.4 percent to 70 cents a share and will request approval to buy back as much as 10 percent of the stock.

The luxury carmaker in Feb. 2006 completed a repurchase of 3 percent of its stock, part of an effort to increase the share price. The company's approval to buy more stock expired in November.

Full-year net income increased to 2.87 billion euros ($3.8 billion), or 4.38 euros a share, from 2.24 billion, or 3.33 euros, the Munich company said in a statement today. That's more than the 2.77 billion-euro Bloomberg estimate.

Revenue increased 5 percent to 49 billion euros from 46.7 billion euros a year earlier, BMW said Jan. 26. The carmaker will hold its annual earnings press conference March 14 at company headquarters.

Beating Mercedes

BMW maintained its lead over Mercedes-Benz last year. BMW- brand sales rose 5.2 percent to 1.19 million vehicles, while sales of the Mini declined 6.2 percent to 188,072 cars as the factory making the car shifted over to a new version that went on sale in November. Sales at BMW's Rolls-Royce luxury-car division rose 1.1 percent to 805 sedans.

``BMW is still laughably undervalued,'' said Juergen Meyer, who helps manage the equivalent of 1.5 billion euros at SEB Asset Management in Frankfurt.

The 3-Series is BMW's most popular car and accounts for almost half of the company's total vehicle sales. The car competes with the Mercedes-Benz C-Class and Volkswagen AG's Audi A4. The newest version was introduced in 2005. BMW last year also introduced a 3-Series coupe.

Profit at DaimlerChrysler's Mercedes Car Group surged last year to 2.4 billion euros compared with a loss in 2005. Sales, including those of the Smart minicar brand, rose 3 percent to 1.25 million vehicles.

Daimler Reorganization

DaimlerChrysler CEO Dieter Zetsche, who also runs the Mercedes group, is completing a reorganization of the luxury division by cutting jobs and slashing production costs in order to push profit as a percentage of sales to 7 percent by the end of the year. In contrast, BMW's Reithofer has said he can't offer shareholders ``a restructuring story.''

BMW has boosted vehicle sales by more than half since 2000 while keeping the size of the workforce largely unchanged, Reithofer told reporters March 6 at the Geneva motor show. The company aims to boost productivity by 5 percent a year.

The Munich-based carmaker will introduce two all-new vehicles next year. The company expects to sell ``more than'' 1.4 million cars and light trucks this year.

BMW cut its holding in Rolls-Royce to 2.77 percent from 9.02 percent in two transactions in February and March. The deals settled a bond BMW sold in December 2003 that was convertible into Rolls-Royce stock.

The workforce expanded to 106,575 people at the end of December from 105,798 people a year earlier.

Credit default swaps based on 10 million euros of BMW's debt fell to 9,096 euros from 9,173 euros at 11:31 a.m. in London today, according to data compiled by Bloomberg. A decline indicates an improvement in the perception of credit quality.

Credit-default swaps are financial instruments based on bonds or loans that are used to speculate on a company's ability to repay debt.

To contact the reporters on this story: Jeremy van Loon in Geneva at jvanloon@bloomberg.net.

Last Updated: March 8, 2007 09:45 EST