UPDATE 6-Toyota in surprise Q2 profit, outlook bumpy

* Q2 operating profit Y58 bln vs consensus Y63 bln loss

* Sees FY operating loss Y350 bln instead of Y750 bln loss

* Cost cuts seen as key as government stimuli run out

* Toyota's U.S. shares rise 1.4 pct (Adds U.S. share move)

By Chang-Ran Kim, Asia autos correspondent

TOKYO, Nov 5 (Reuters) - Toyota Motor Corp's surprise quarterly profit and halving of its annual loss forecast failed to convince investors the world's No.1 carmaker is back on track, as government subsidies peter out and a strong yen takes its toll.

Major Japanese automakers have raised their forecasts for the year to March 2010 as they squeeze out savings and government incentives from Germany to China, the U.S. and Japan prop demand through the worst economic crisis in generations.

But with such stimulus programmes beginning to run out, Toyota (7203.T) is looking to eliminate more spending, announcing its exit from Formula One racing on Wednesday to put that annual budget of around $300 million to better use. [ID:nT151120]

"The biggest challenge for Toyota now is cutting overheads," said Koji Endo, a senior analyst at Advanced Research Japan in Tokyo.

"The company has not been able to respond to a sudden plunge in revenue with speedy cost reductions."

Toyota, until two years ago the world's most profitable automaker, is expecting the biggest loss among its domestic peers this year, weighed down by severe overcapacity after adding new factories during its boom years before the financial crisis hit.

While Toyota said it expects an additional 350 billion yen ($3.9 billion) in emergency cost savings than what it had planned three months ago, investors were unimpressed by its revised outlook, especially after the consensus-beating forecasts from rivals Honda Motor Co (7267.T) and Nissan Motor Co (7201.T). [ID:nT127974] [ID:nT324227]

Toyota expects an operating loss of 350 billion yen for the year to March, smaller than the 750 billion yen previously forecast but bigger than the 293 billion yen consensus from Thomson Reuters I/B/E/S.

"It seems too large," Koichi Ogawa, chief portfolio manager at Daiwa SB Investments. "Toyota looks a little less attractive than other companies such as Honda and Nissan," he said, adding the market may find the news disappointing.

Toyota's U.S. shares rose 1.41 percent to $80.58 on Thursday. It's Tokyo-traded shares ended down 0.8 percent before the results, having risen 23 percent this year. Nissan has more than doubled, while Honda is up by almost half over the same period.

Q2 BEATS FORECASTS