UPDATE 2-Toyota shares jump as outlook reassures

(Adds analyst comments)

TOKYO, Aug 8 (Reuters) - Shares in Toyota Motor Corp (7203.T) jumped 4.6 percent on Friday as investors looked past a sharp fall in earnings at the world's biggest carmaker to take reassurance from its decision to keep its outlook unchanged.

Quarterly profit dropped 28 percent at Toyota, which faces its most challenging year in recent memory as high fuel prices batter the auto sector, but it said a favourable yen exchange rate would offset falling sales over the course of its financial year. [ID:nT303458]

"Contrary to concerns that it would revise down full-year earnings guidance based on altered forex assumptions, Toyota has kept its original targets," Morgan Stanley analyst Noriaki Hirakata said in a report to clients.

"The cut in production targets is about as large as was feared, but reserve provisioning for the sales finance business is much lower than we expected."

Toyota booked an increase of 9 billion yen ($82 million) in provisions and losses for the fall in value of its leased vehicles in the United States for the first quarter. For the full year to March 2009, management forecasts losses of about 20 billion yen.

That is lower than Nissan Motor's (7201.T) additional reserves of 42 billion yen for its leased vehicles over the next three years and less than half what Honda Motor (7267.T) set aside. Toyota said the resale value of vehicles had suffered less than those of its rivals, while it is also amortising the provisions over a period.

Toyota shares jumped 210 yen to 4,790 yen at one point on Friday, which one market analyst said may reflect that investors had sold shares in fear prior to the profit announcement, after eyeing the dismal results of domestic and overseas rivals, including General Motors (GM.N).

"Toyota shares have already priced in a very tough situation for the automaker, so they are up today after the bad news came out," said Kenichi Hirano, operating officer at Tachibana Securities.

"But that does not mean Toyota shares have started an upward trend. It's just that the negative news is out in the open for now."

Takaki Nakanishi, an auto analyst at JPMorgan Securities, warned, however, that risks of a downward revision to its profit forecasts remained, predicting the share price recovery was unlikely to persist.

"Expectations of a V-shaped earnings recovery have receded, and our impression is that all the bad news is not out yet," he wrote in a report.

By the end of morning trade Toyota shares had eased back a little to trade up 3.9 percent at 4,760 yen, outperforming the Nikkei average .N225, which fell 0.6 percent. ($1=109.50 Yen) (Reporting by Sachi Izumi, Taiga Uranaka and Chang-Ran Kim; Editing by Michael Watson)