UPDATE 5-3M beats, raises outlook, but data weighs on shares

* Q4 EPS $1.30; Street view $1.21

* Inches full-year outlook higher

* Sales of specialized films jump

* Shares down 1.9 pct (Adds additional analyst comment, updates share movement)

By James B. Kelleher

CHICAGO, Jan 28 (Reuters) - Diversified manufacturer 3M Co (MMM.N) posted higher-than-expected quarterly earnings and raised its full-year outlook on Thursday, citing strong demand for all its products, especially optical films used to brighten the TV and computer screens.

But 3M shares fell, caught up in a selloff that was especially hard on highly cyclical industrial companies.

3M, probably best known for its trademark brands like Post-It notes and Scotch tape, reported fourth-quarter net income of $935 million, or $1.30 a share, up from $676 million, or 97 cents a share, a year earlier.

Analysts on average expected earnings of $1.21 a share, according to Thomson Reuters I/B/E/S.

Revenue increased 11 percent to $6.1 billion. Wall Street expected $5.77 billion.

The company, which makes everything from adhesives and abrasives to stethoscopes and insect repellent, said the results were driven by a 15.7 percent jump in sales of display and graphics products, like the coatings found on high-definition TVs and computer monitors.

Strong sales of healthcare products, including masks used to prevent infections from the H1N1 flu virus and other pathogens, also contributed to the results.

3M raised its forecast for 2010 earnings per share to a range of $4.90 to $5.10, up from a previous outlook of $4.85 to $5.00. Analysts were expecting $4.57, according to Thomson Reuters I/B/E/S.

Despite the better-than-expected results and the raised forecast, 3M shares fell as weaker-than-expected U.S. data on durable goods and jobless claims raised fears that the recovery may be faltering. The economic news pulled down the broader market, including shares of other industrials like Caterpillar Inc (CAT.N) and Deere & Co (DE.N).

"There's growing concern that the U.S. economy is maybe stumbling, and since stock prices have factored in hopes of a more robust rebound, we're seeing weakness in a lot of industrial names," said Morningstar analyst Adam Fleck. "It looks like 3M is getting roped into that selloff."

3M has another problem, analysts said. Having topped earnings forecasts for four quarters in a row, the company has created expectations that it may find hard to meet.

To help rein in those hopes, 3M's top executive reminded analysts that the economy was still a difficult one.

"We're still sailing in some choppy economic waters," Chief Executive George Buckley said during a call to discuss the results.

"They're bending over backwards, like a lot of industrial companies, to make sure expectations don't get out of control," said Wayne Titche, chief investment officer at AMBS Investments in Grand Rapids, Michigan.

3M shares, which rose ahead of the results to a two-year high, edged lower as the market fell. The stock was down 1.9 percent at $80.71 on the New York Stock Exchange, while Caterpillar and Deere were both off nearly 3 percent. (Additional reporting by Nick Zieminski; editing by Maureen Bavdek, John Wallace, Robert MacMillan and Lisa Von Ahn)