UPDATE 3-J.C. Penney raises earnings view; shares up

* Q3 EPS of 11 cents vs 11 cents Wall Street view

* Q3 sales of $4.18 billion meet Wall Street view

* Sees Q4 EPS of 70-85 cts vs Wall Street view 82 cts

* Sees FY EPS 93 cts-$1.08; prior view was 75-90 cts

* Shares up 7.2 percent (Adds analyst comments)

By Phil Wahba

NEW YORK, Nov 13 (Reuters) - U.S. department store operator J.C. Penney Co Inc (JCP.N) forecast earnings for the holiday quarter that could surpass Wall Street expectations, and its shares rose 7.2 percent on Friday.

Penney also reported a third-quarter profit that met Wall Street expectations on Friday and improved its sales forecast for the full year, which includes the crucial holiday season.

Earlier this week, rivals Macy's Inc (M.N) and Kohl's (KSS.N) gave revised fourth-quarter outlooks that fell short of analysts' estimates, taming expectations for holiday spending in light of rising unemployment. [ID:nN12403080] [ID:nN11421601]

That news sent J.C. Penney's shares down as investors were expecting the retailer to follow suit with forecasts that would also fall short of Wall Street expectations.

But its revised outlook was in line with expectations, so Penney's shares rebounded to just above where they closed on Tuesday, at $31.15, the last session before Macy's released its earnings.

"Expectations were low and J.C. Penney's guidance was not as conservative as investors had feared," said Erika Maschmeyer, a senior research analyst with Robert W. Baird.

The company said it had benefited from tighter inventory management that raised its profit margin by 210 basis points to 40.6 percent during its third quarter, which ended on Oct. 31.

Penney "maintained appropriate inventory levels and reduced both clearance selling and unprofitable discounting," Chief Executive Officer Myron Ullman said in a statement. "We expect these strategies to be particularly effective in the fourth quarter."

Despite expecting lower sales, Penney forecast fourth-quarter earnings per share of 70 cents to 85 cents. Analysts on average were expecting 82 cents, according to Thomson Reuters I/B/E/S.

That would bring full-year profit to a range of 93 cents to $1.08 per share, up from the company's prior outlook of 75 cents to 90 cents. The company improved its outlook for full-year, same-store sales, predicting they would fall between 6.5 percent and 7 percent for the year, rather than a previously anticipated 7 percent to 7.5 percent.