Jan. 29 (Bloomberg) -- U.S. Steel Corp., the biggest U.S.- based steelmaker, said fourth-quarter profit rose more than analysts expected on higher U.S. prices and increased demand in Europe.

Net income rose to $297 million, or $2.50 a share, from $109 million, or 85 cents, a year earlier, Pittsburgh-based U.S. Steel said today in a statement. Analysts expected profit of $2.20, based on 13 estimates in a Bloomberg survey. Sales jumped 8.8 percent to $3.77 billion.

Prices in Europe surged 21 percent and shipments jumped 14 percent, even as sales slowed to U.S. metals distributors and automakers. While U.S. prices were higher from a year earlier, shipments fell as imports rose to a record and inventories increased. Chief Executive Officer John P. Surma Jr. said profit in the current quarter will be less than the fourth quarter.

``The fourth quarter had relatively strong pricing with the overhanging cloud of declining auto production,'' said Scott Burns an analyst at MorningStar Inc. in Chicago.

Shares of U.S. Steel rose 62 cents, or 0.8 percent, to $77.50 at 5:53 p.m. in New York. Results were released after the close of floor trading, when the stock fell $1.10, or 1.4 percent, to $76.88 at 4:29 p.m.

Full-year net income was a $1.37 billion, the highest annual total ever, surpassing the previous record of $1.14 billion in 2004.

Reduced U.S. Shipments

U.S. Steel has reduced domestic production since the third quarter because of declining demand for flat-rolled steel from automakers and appliance manufacturers. Cheaper imports and rising inventories have helped send prices for the steel, the benchmark product, to their lowest in thirteen months.

The company's European business sold steel at $665 a ton, compared with $550 a year earlier. Shipments at the unit rose to 1.55 million tons from 1.36 million. The company's global shipments fell about 2 percent to 4.89 million tons, reflecting a decline in the U.S. Flat-rolled products fell about 8 percent to 3.08 million tons.

The company said Oct. 31 that fourth-quarter results would be less than the $417 million, or $3.42 a share, earned in the third quarter. The flat-rolled unit accounted for about 35 percent of the company's $652 million third-quarter operating income. At the time, U.S. Steel predicted shipments would drop more than 10 percent in its tubular business.

Forecast

First-quarter results will probably decline, Surma said in the statement. Flat-rolled demand is ``firming'' and the company has restarted blast furnaces that were turned off last quarter to align supply and demand.

Steel producers including Arcelor Mittal Co., the world's largest, have cut U.S. production in the fourth quarter to stem the decline in prices. U.S. Steel and Arcelor Mittal stopped a similar price decline with supply cuts in the third quarter of 2005.

The price of steel sheet fell 5.3 percent to $535 a ton in December, its lowest in 13 months, from $565 a ton in November, according to a Dec. 29 report from Purchasing Magazine.

Prices have declined the past few months because of rising imports and expanding inventories held by service centers, which process and distribute steel to larger industrial customers.

Industry Earnings

Earnings by U.S. steel producers have topped estimates. Nucor Corp., the second-largest U.S.-based producer, last week reported a 20 percent jump in profit to $408.2 million because of higher prices and lower energy costs. Steel Dynamics Inc. said Jan. 23 that profit surged 68 percent to $105.1 million.

Improved results have come even as some U.S. companies cut back on purchases. Companies such as DaimlerChrysler AG's Chrysler and Ford Motor Co., burdened by pension and health-care costs and rising competition from Japanese carmakers, are limiting steel orders as they grapple with falling sales.

U.S. Steel is more reliant than competitors such as Nucor Corp. or AK Steel Corp. on sales of flat-rolled steel.

Surma has used record earnings to pay down $1 billion in debt the past two years, and U.S. Steel shares have jumped 37 percent in the past year on speculation the company will be a takeover target.

Before today, U.S. Steel shares had doubled in the past two years, in part because of speculation that U.S. producers will be takeover targets. Mittal Steel's $38.3 billion acquisition of Arcelor SA last year made producers consider whether to buy other companies or risk being acquired themselves, said Michael Gambardella at JP Morgan.

The Standard & Poor's Supercomposite Steel Index of 15 companies rose as much as 2 percent to 233.7 today, the highest since reaching a record 233.99 on Dec. 7.

To contact the reporter on this story: Dale Crofts in Chicago at dcrofts@bloomberg.net.

Last Updated: January 29, 2007 18:54 EST