Honda Motor Co's <7267.T> operating profit for the last financial year will likely beat the company's estimate by a small margin thanks to a weaker yen and better-than-expected sales in China, a newspaper said on Wednesday.

The spreading global recession has battered the auto industry as consumers, fearing for their jobs, put off buying big-ticket items, while tightening credit has also made it difficult for potential buyers to get financing.

Japan's second-biggest automaker slashed annual profit forecasts four times in the last business year and cut production to reduce inventories, but it is faring better than rivals such as Toyota Motor Corp <7203.T> which has projected its first operating loss for the year ended March.

Investors said the report was not enough to spark buying of Honda's shares.

I think profits were simply boosted by a weaker yen. We can't expect a recovery in sales just yet and even in China the improvement in their sales doesn't seem that great, said Fujio Ando, senior managing director at Chibagin Asset Management

It looks like Honda is still struggling with excess inventories in the U.S. market, and this will continue to be a big burden for them for a while.

Honda is expected to book an operating profit of about 150 billion yen ($1.5 billion) for the year ended March 31, the Nikkei business daily said.

That is 10 billion yen more than the company had projected, and above a consensus for a 142.3 billion yen profit from a poll of 18 brokerages by Reuters Estimates. But it is still an 84 percent plunge from a year earlier.

A weaker yen than the company had estimated pushed up profit by over 20 billion yen in January-March, the paper said.

Earnings were also helped by sales in China, which increased 2.5 percent in the quarter from same period the previous year. Honda's China chief Atsuyoshi Hyogo has also said Honda expects its sales in the country to grow 10 percent this year.

For the current financial year, Honda aims to maintain an operating profit through cost cuts although global unit sales will likely fall about 10 percent on the year, the paper said.

Honda shares gained 1.3 percent to 2,765 yen in morning trade, compared with a 0.9 percent rise in the auto subindex <.ITEQP.T>.

(Additional reporting by Mariko Katsumura; Editing by Edwina Gibbs)

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