World number one air bag and seatbelt maker Autoliv expects sales will rise strongly this year on demand from China and North America, as it posted above-forecast fourth-quarter earnings, sending its shares higher.

Autoliv said it saw sales surging 70 percent in the first quarter and by 15-20 percent over the full year, aided by a firm recovery in light vehicle production in North America and strong sales in Asia.

The upbeat outlook comes as automakers and parts manufacturers grapple with a patchy recovery from a vicious global downturn, and as the world's largest carmaker, Toyota <7203.T> halted U.S. sales of some of its best-selling vehicles to address a product safety crisis.

The company, which raised fourth-quarter guidance in December to reflect rising sales in China and other emerging markets, also said it expected sturdier operating margins on the back of higher sales and sweeping cost cuts.

This is good all the way through. They show that they are still growing faster than the market and are taking market share quickly, Evli Bank analyst Michael Andersson said.

At the same time cost cuts are feeding through across the board. The guidance for this year is very positive, but it doesn't feel too aggressive and I think they can beat it.

An operating margin of approximately 8.5 percent is expected for the first quarter and a full-year operating margin in line with Autoliv's long-term target range of 8-9 percent, the company said in a statement.

Autoliv's forecast bettered an outlook for a 7.0 percent full-year operating margin and a 15 percent rise in sales in a Reuters poll. It reported a 2009 margin of 1.3 percent.

Its October-December pretax earnings were $98 million, above the $69 million seen in a Reuters poll and after a $47 million in the 2008 period.

Autoliv shares were up 4.5 percent by 1135 GMT, outperforming a 0.7 percent rise in the Stockholm bourse's blue-chip index <.OMXS30>.

The financial crisis caused an upheaval in the global auto sector last year as the industry struggled to come to terms with widespread overcapacity in the face of the downturn, though incentive schemes helped ease the pain.

In Europe, Autoliv's biggest market, sales eased only 1.6 percent in 2009, to 14.48 million units, saved from a sharper drop by the generous incentives which are now being phased out, raising doubts about sales this year.

Strength in emerging markets in Asia and Latin America, as well as a stabilization of the hard-hit North American market, has underpinned hopes for a recovery for automakers from a difficult 2009, though worries remain over Europe.

Ford Motor Co earlier this week posted its first full-year profit since 2005 and said it expected to remain profitable in 2010 despite the still-fragile economy.

Makers of smaller cars with better fuel economy and lower prices have also prospered amid the market woes.

Earlier on Friday, South Korea's Kia Motors <000270.KS> posted a record quarterly profit and said it aimed to grow its sales volume 26.5 percent this year.

Autoliv, which has won market share amid the sector woes, said forecasts showed light vehicle production in Western Europe was expected to rise 22 percent in the first quarter but ease 3 percent for the full year.

Other pundits are less upbeat, with Italy's Fiat earlier this week forecasting an industry-wide sales fall of 16 percent this year if the incentives are scrapped across the region. In Germany, Europe's largest car market, they have already run out.

The supplier that builds the accelerator pedals at the center of the Toyota recall, CTS Corp , said it was ramping up production on a redesigned part that it believes fixes the safety issue.

(Additional reporting by Johannes Hellstrom and Johan Ahlander)

(Editing by Dan Lalor and Louise Heavens)

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