UPDATE 4-Starwood beats Street, raises 2010 outlook

* Q2 operating share ex items 35 cents

* Lifts 2010 revPAR, earnings outlook

* Shares up 3.7 percent (Adds comments from conference call, updates shares)

By Deepa Seetharaman

NEW YORK, July 22 (Reuters) - Starwood Hotels & Resorts Worldwide Inc (HOT.N) reported a higher-than-expected profit on Thursday and said the rebound in business demand should allow the hotelier to command higher room rates this year.

Starwood also raised its 2010 earnings outlook, and shares rose about 4 percent in afternoon trading.

"As each month passes, we're increasingly convinced that the great lodging depression of 2008 and 2009 is behind us," Chief Executive Frits van Paasschen said during a conference call with analysts.

Net income fell to $114 million, or 61 cents per share, from $134 million, or 74 cents per share, a year earlier.

But excluding items, earnings from continuing operations were 35 cents per share, beating analysts' average estimate of 26 cents, according to Thomson Reuters I/B/E/S.

Analysts attributed the beat in part to higher-than-expected revenue per available room. In the second quarter, revenue rose to $1.29 billion. Expenses fell 8 percent.

Starwood forecast 2010 earnings per share of 93 cents to $1.05, up from a prior outlook of 88 cents. Analysts have been expecting 95 cents.

The operator of Sheraton, W and St. Regis hotels now projects revenue per available room to rise 7 percent to 9 percent in 2010. It had previously expected an increase of 5 percent to 8 percent.

During the call, executives said the new outlook does not anticipate a major economic slowdown and it expects a pick-up in bookings. But executives said that it is still difficult to discern how bookings will play out later this year.

"The global economy remains volatile and unpredictable," van Paasschen said. "If, for example, the European sovereign debt scare that began in May were to derail the recovery, it would not be until later this fall that it would hit our business."

Starwood was buoyed by a strong revPAR performance from its luxury hotels. Luxury hotels have outperformed the broader U.S. hotel industry, after tumbling the most in 2009.

In the second quarter, revPAR rose 13.1 percent. RevPAR jumped 33 percent at Starwood's luxury W hotel chain and 13.5 percent at its Sheraton brand.

Hotels in Latin America saw a nearly 30 percent jump in revPAR, while Asian hotels continued to shine with a 31.7 percent rise.

Shares rose 3.7 percent to $45.44 on the New York Stock Exchange.

LUXURY HOTELS SHINE

Smith Travel Research data show that room rates for the overall industry rose 1 percent in June, the first monthly increase in rate since September 2008.

The new data added to mounting signs that a recovery is underway in the lodging industry.

Starwood's quarterly scorecard comes after results from Marriott International Inc (MAR.N) and Host Hotels & Resorts Inc (HST.N). The companies said they will likely raise rates when they begin to negotiate room rates with companies in the fall.

LaFleur, who forecast earnings of $1.01 for 2010, said it is possible that these projections could be seen as conservative as the year goes on.

"The trajectory of recovery we're on now suggests that there is upside potential to those numbers," Hudson Securities analyst Robert LaFleur said before the earnings call.

(Reporting by Deepa Seetharaman; Editing by Derek Caney, Maureen Bavdek and Lisa Von Ahn)