UPDATE 3-ITT posts profit, raises year forecast

* Q2 adj EPS $1.06 vs. Wall Street estimate 80 cents

* Year forecast raised

* Shares up 6 pct

(Adds commentary from call, stock rise)

ATLANTA, July 31 (Reuters) - ITT Corp (ITT.N) reported higher-than-expected second-quarter profit on Friday as cost cuts helped offset falling sales, and the diversified manufacturer raised its full-year forecast, sending its shares up 6 percent.

The company said it saw improvement in some end markets and forecasted higher defense results in the second half.

"The operating margin and cashflow performance were particularly notable, pointing to good cost control and follow-through of restructuring savings," Macquarie Research analyst Rob Stallard said in a note to clients.

ITT has been cutting headcount, consolidating plants and moving production to lower-cost areas to pare expenses.

The maker of wastewater pumps and military equipment said net income fell 9 percent to $201.4 million, or $1.10 a share, from $221 million, or $1.19 a share, a year earlier.

Excluding items, profit was $1.06 a share, compared with 80 cents expected by analysts, according to Reuters Estimates.

Sales fell 9 percent to $2.8 billion, but were better than the $2.7 billion analysts expected. Total costs and expenses also fell about 9 percent.

Sales in fluid technology were off 15 percent, reflecting weak North American commercial and residential water markets. Sales in the motion and flow control segment fell 30 percent, hurt by lower production in automotive and commercial aerospace markets. Defense electronics sales were flat.

During a conference call, company executives noted signs of stability in European and U.S. municipal water and improving European automotive markets, but added that recovery was slower to come in aerospace, marine and general industrial businesses.

ITT said its defense business, which accounts for more than half of the company's overall revenue, would post a stronger second half because of rising demand for radios that transmit voice, analog or digital data and its latest generation night-vision goggles.

The company said it expected full-year earnings of $3.50 to $3.70 a share, excluding items, compared with a previous outlook of $3.20 to $3.60.

For the third quarter, ITT forecast per-share profit of 80 cents to 90 cents, excluding items.

Analysts currently expect per-share profit of 91 cents for the third quarter and $3.43 for the year, according to Reuters Estimates.

ITT shares were up $1.71 to $49.98 in late morning trading. (Reporting by Karen Jacobs; Editing by Lisa Von Ahn, Phil Berlowitz)