Daimler expects rising demand for its most expensive Mercedes-Benz models to drive operating profit to 6 billion euros ($7.8 billion) in 2010, its best result since the auto industry boom that peaked three years ago.

The company said on Tuesday the bulk of operating profits would come from its Mercedes business, where Daimler increased the earnings outlook for 2010 for the second time, to 4 billion.

Strong sales of the lucrative E-Class and S-Class models, a drop in incentives along with a sharp rebound in demand driven by Chinese and U.S. car buyers combined to surprise a conservative management that had expected only over 1.5 billion in Mercedes profits at the start of this year.

Our strategy is paying off: We have a very dynamic development of unit sales and revenue in all divisions. After what was already a very good first quarter, we achieved excellent results in the second quarter, Chief Executive Dieter Zetsche said in a statement.

With the exception of the 8.7 billion euros earned three years ago, Daimler hasn't achieved earnings before interest and tax (EBIT) of 6 billion or more since 2002.

Daimler already pre-announced blow out results for the second quarter, in the words of Commerzbank's analysts, earlier this month that showed both luxury car and heavy truck markets recover from last year's substantial slump.

Nevertheless, profitability at Mercedes is believed to have peaked for this year at nearly 10 percent in the second quarter, and some analysts struggle to find a catalyst for further share price gains after Daimler already trades at a premium to its peers.

A faster than expected rebound in demand for commercial vehicles like the Mercedes-Benz Actros, Freightliner Cascadia or Mitsubishi Fuso Canter could shift earnings growth into next gear.

Daimler Trucks, the world's largest manufacturer of big rigs that competes most closely with Sweden's Volvo AB, raised its operating profit forecast to around 1 billion euros from a previous range of between 500 million and 700 million.

(Reporting by Christiaan Hetzner)

Daimler AG