Canon quarterly profit up,lowers full-year outlook

(Adds sales, closing share price, background)

TOKYO, July 26 (Reuters) - Japan's Canon Inc. (7751.T) posted a 7.8 percent gain in quarterly profit on Thursday, driven by robust demand for its digital cameras, but lowered its annual profit outlook to book big depreciation costs.

The world's largest maker of digital cameras, which competes with smaller rivals such as Sony Corp. (6758.T), Eastman Kodak Co. (EK.N) and Olympus Corp. (7733.T), also enjoyed brisk sales of printers and copiers.

For the full business year to December, Canon lowered its operating profit forecast by 3 percent to 766 billion yen, short of a consensus of 811.7 billion yen in a poll of 20 analysts by Reuters Estimates, citing a 67 billion yen rise in depreciation costs due to an accounting change.

It tweaked its revenue forecast up by 40 billion yen to 4.58 trillion yen to account for a weaker-than-expected yen.

Canon aims for an eighth straight year of earnings growth in 2007, and a softer yen is giving a boost to the Tokyo-based company. Canon's overseas sales account for three-quarters of its total revenues.

Operating profit at Canon came to 181.47 billion yen ($1.51 billion) in April-June, up from a 168.34 billion profit a year earlier. Net profit rose 17 percent to 123.93 billion yen on sales of 1.127 trillion yen, up 9.5 percent.

Canon, whose rivals in the office printer and copier market include U.S.-based Xerox Corp. (XRX.N) and Japan's Ricoh Co. Ltd. (7752.T), saw brisk colour copier sales thanks to strong demand for newly launched models.

As the number of installed copiers and printers expands, profits from sales of high-margin "consumables" such as toner grow.

Ahead of the announcement, shares in Canon closed down 2.3 percent at 6,890 yen, underperforming the Tokyo stock market's electrical machinery index .IELEC.T, which fell 1 percent.

Canon shares gained 14 percent in the three months to June 30, while the sub-index put on 8 percent.

((Reporting by Kiyoshi Takenaka, editing by Michael Watson; Reuters Messaging: kiyoshi.takenaka.reuters.com@reuters.net; +81-3-3432-8837; kiyoshi.takenaka@reuters.com)) Keywords: CANON RESULTS/

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