General Motors Co's quarterly profit shot past Wall Street expectations, but its share price slipped as investors focused on the risks of a sputtering economy and resurgent Japanese rivals.

GM reported second-quarter profit that nearly doubled as people paid more for new cars like the Chevrolet Cruze, and the automaker took a larger share of global sales as major Japanese competitors were largely sidelined by the March earthquake.

GM shares, which rose after the results were announced, fell 2.9 percent in midday trading.

It was a solid quarter that shows GM's return to health is on track, said Edward Jones analyst Matt Collins. But with Japanese automakers getting back in the game while the economy appears to be stalling, this is probably as good as it gets this year.

Coming out of bankruptcy, GM Chief Executive Dan Akerson and other executives said the company stripped out enough costs to make the business recession proof so it could thrive even in a weak auto market.

The first major test of that claim for investors, including the U.S. Treasury, will be how GM performs if the economy slips back into recession.

We're obviously sitting here today looking at a fairly uncertain and, in the view of a lot of people, fairly bleak economic picture, GM Chief Financial Officer Dan Ammann told analysts on a conference call.

The U.S. automaker is pushing heavily into smaller, more fuel-efficient cars like the Cruze, but still relies heavily on sales of more profitable trucks in the U.S. market.

In the second quarter, GM raised prices and reduced discounts thanks to strong sales of vehicles such as the Cruze and the Chevy Equinox and the lack of competitive pressure from the likes of Toyota Motor Corp.

Jefferies analyst Peter Nesvold called GM's quarterly performance phenomenal because of a bigger-than-expected lift from higher prices. But he also said the results were not enough to dispel investor concerns about the economy.

The market is clearly saying, 'I don't care what you did in the first half, I want to know what you're going to do in the second half and 2012.' And the market is saying, 'Whatever you think volume and revenues are going to be, you're too high,' Nesvold said.

'BACK WITH A VENGEANCE'

GM's gains came as its Japanese rivals struggled with fewer vehicles to sell because of disruptions to the supply of auto parts after the Japan earthquake.

GM North American President Mark Reuss, speaking at an industry conference on Thursday, said the automaker was braced for Toyota, Honda Motor Co and Nissan Motor Co to be back with a vengeance this year in the U.S. market.

For the second quarter, GM's net income rose to $2.52 billion, or $1.54 per share, from $1.33 billion, or 85 cents per share, a year earlier.

The earnings per share blew past the $1.20 analysts polled by Thomson Reuters I/B/E/S had projected on average.

Revenue rose 19 percent to $39.4 billion, above the $36.74 billion analysts expected.

We believe this quarter should begin to revive momentum around the GM story, Citi analyst Itay Michaeli said.

Michaeli said the results might prompt investors to raise their valuation for a stock that has dropped by more than 25 percent since the beginning of the year.

GM emerged from bankruptcy in 2009 after a $52 billion taxpayer-funded bailout. The U.S. Treasury owns 32 percent of GM's common shares, and how it unwinds that stakes remains an unanswered question.

GM's share of global vehicle sales rose to 12.2 percent in the quarter from 11.6 percent a year earlier. Toyota's slip allowed GM to retake its spot as the largest global automaker by sales volume in the first half.

If the economy falters in the second half of the year, GM may have to raise incentives on its vehicles to lure shoppers, analysts have said.

GM executives said on Thursday they were looking at incentive spending in North America in the second half being unchanged from the first half, but would watch the discounts offered by their Japanese rivals closely.

For the second half of the year, GM expects its adjusted profit before interest and taxes to be modestly lower than the first half, but full-year results to be better than in 2010.

GM ended the quarter with liquidity of almost $40 billion, up from $36.5 billion at the end of June. Ammann said the company's focus would be on maintaining its fortress balance sheet to reinvest in the business and withstand economic shocks.

We want to return cash to shareholders. When and how and in what form that will happen has yet to be determined, he said.

(Reporting by Ben Klayman and Kevin Krolicki in Detroit, additional reporting by Bernie Woodall and Deepa Seetharaman in Traverse City, Mich. Editing by Derek Caney, John Wallace, Dave Zimmerman and Robert MacMillan)

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