* Caterpillar reports stronger-than-expected Q3 net, sales
* Raises full-year outlook, says recovery under way
* Shares up 6 percent (Adds details on outlook, third-quarter sales)
CHICAGO, Oct 20 (Reuters) - Machinery maker Caterpillar Inc (CAT.N) posted stronger-than-expected quarterly earnings on Tuesday and raised its full-year forecast, saying it was seeing signs that a recovery may be under way.
The news sent Caterpillar shares up 6 percent in trading before the market opened.
The world's largest maker of construction and mining equipment and a closely watched component of the Dow Jones industrial average reported a third-quarter net profit of $404 million, or 64 cents a share, compared with $868 million, or $1.39 a share, a year earlier.
Revenue fell 44 percent to $7.29 billion.
Analysts on average had expected the Peoria, Illinois-based company to report a profit of 6 cents a share on sales of $7.47 billion, according to Thomson Reuters I/B/E/S.
Caterpillar also provided its first forecast for 2010, saying it expects revenue will be up 10 percent to 25 percent from 2009 levels.
The company, which has laid off, bought out or retired about 34,000 workers globally over the past year as demand for its earth-moving equipment declined along with economic growth, raised its full-year profit forecast to a range of $1.10 to $1.30 a share, including redundancy costs.
That is up from its previous estimate of about 95 cents a share, including redundancy costs.
The quarter just ended was a tough one, but Caterpillar said it believed it marked the low point for revenue.
"While we are still navigating through a very difficult environment in 2009, we see signs of improving economic conditions throughout most of the world," Chief Executive Officer Jim Owens said in a statement.
Worldwide sales of Caterpillar's earth-moving equipment fell 52 percent to $3.9 billion, while sales of its diesel engines and turbines fell 35 percent to $2.68 billion.
Caterpillar shares rose to $61.31 in trading before the market opened from Monday's New York Stock Exchange close of $57.85. (Reporting by James B. Kelleher, editing by Maureen Bavdek and Lisa Von Ahn)