Jan. 25 (Bloomberg) -- Microsoft Corp. advanced the most in three months in Nasdaq trading after raising annual sales and profit projections, reassuring investors that the company can cope with slowing economic growth.

Microsoft, the world's largest software maker, rose 39 cents, or 1.2 percent, to $33.64 at 12:01 p.m. New York time on the Nasdaq Stock Market. Earlier, the shares climbed as much as 5.3 percent, the most since Oct. 26. They had dropped 6.6 percent this year before today.

Increasing shipments of personal computers have helped Microsoft escape the effect of any U.S. slowdown, Chief Financial Officer Chris Liddell said yesterday in an interview. The company also now gets about 60 percent of its sales outside North America, making it less vulnerable to the whims of U.S. customers, he said.

``This will help the psychology of Microsoft's stock and will help tech investors feel better about the tech sector overall,'' said Chuck Jones, who helps oversee $17 billion, including Microsoft shares, at Atlantic Trust Private Wealth Management in San Francisco. ``Microsoft has large international exposure and the international growth is helping.''

Under Chief Executive Officer Steve Ballmer, second-quarter net income increased 79 percent to $4.71 billion, or 50 cents a share. That surpassed the 46-cent average of analysts' estimates compiled by Bloomberg. Sales climbed 30 percent to $16.4 billion, topping projections.

Forecast

Microsoft, based in Redmond, Washington, said profit in the year ending June 30 will be $1.85 to $1.88 a share, on sales of $59.9 billion to $60.5 billion. Analysts on average estimated profit of $1.81 and sales of $59.4 billion.

``It was actually very interesting that they would have such a strong forecast for PC unit demand, and actually say point-blank when asked by analysts that they're not seeing any sort of slowdown,'' said L.R. Burtschy & Co.'s Paul Meeks. ``Luckily, being a large multinational company, Microsoft should continue to do well.'' The Charleston, South Carolina-based equity research director spoke in an interview with Bloomberg Radio.

Analysts at Goldman Sachs & Co. and RBC Capital Markets raised projections for the stock after the report. Microsoft underperformed the Dow Jones Industrial Average for the first nine months of 2007 before beating sales projections by more than $1 billion in its first quarter. That pushed the stock to a 21 percent gain in the December period, the best performance in the Dow and Microsoft's biggest quarterly increase since 2001.

Technology Contrast

Microsoft's results contrast with disappointing forecasts from technology companies such as Apple Inc., Intel Corp. and Motorola Inc. The Standard & Poor's 500 Information Technology Index has fallen 12 percent this year, the second-worst performance of 10 industry groups tracked by the S&P.

Technology spending probably will rise 5.5 percent to 6 percent this year, compared with about 6.9 percent in 2007, Framingham, Massachusetts-based researcher IDC said last month.

Microsoft's growth may reassure investors concerned about a worsening U.S. economy. The Federal Reserve lowered the U.S. benchmark interest rate by three-quarters of a percentage point this week amid increasing signs of recession. Former Fed Chairman Alan Greenspan said yesterday that the odds of a U.S. recession ``have definitely picked up.''

Microsoft's business isn't showing signs of slowing related to the U.S. economy, Liddell said, pointing to PC shipment growth and an unexpected increase in unearned revenue, a marker of future sales. Unearned revenue, which tracks signings of multiyear corporate contracts for Microsoft software, rose $500 million more than Liddell had forecast.

Xbox Gains

This quarter, profit will be 43 cents to 45 cents on sales of $14.3 billion to $14.6 billion, in line with the average analyst profit estimate of 44 cents on sales of $14.4 billion.

In the second quarter, holiday purchases of exclusive Xbox 360 video-games such as ``Halo 3,'' the top-selling game in the U.S. last year, fueled revenue growth and led to more console sales. Windows and Office benefited from PC demand, growing interest in pricier new versions and inroads against software piracy.

``I'm not trying to be Pollyannaish about it, but in the December quarter when people were concerned we were already in a recession, overall PC growth was at 15 percent -- that's not sluggish,'' Liddell said.

The client division, home to Microsoft's Windows software for PCs, posted a 68 percent increase in sales to $4.34 billion. The company gained by persuading PC makers to install pricier versions of its Vista operating system on machines. About 75 percent of the Windows programs sold last quarter were the higher-priced versions, Liddell said.

Safe Place

Revenue in the division that includes Xbox rose 3.1 percent to $3.06 billion, countering Microsoft's forecast that it would decline as much as 8 percent. The unit had earnings of $357 million, the first time it has reported profit in back-to- back quarters.

Sales in Microsoft's business unit, which includes the Office applications, advanced 37 percent to $4.81 billion. That surpassed the $4.61 billion estimate of UBS AG analyst Heather Bellini in New York.

``In this uncertain macro environment, Microsoft is a safe place for refuge,'' said Ashok Kumar, an analyst with CRT Capital Group LLC in San Francisco.

To contact the reporter on this story: Dina Bass in Seattle at dbass2@bloomberg.net

Last Updated: January 25, 2008 12:03 EST