France's Michelin posted a 33.5 percent jump in first-half core operating income to 860.6 million euros ($1.2 billion), meeting forecasts, but its stock fell again on U.S. economic woes.

The world's largest tyre maker by market value said on Friday it benefited from supportive markets, especially in Europe, South America and Asia in the truck tyre segment, while demand remained weak in the United States.

Michelin shares nonetheless fell for a second day, buffeted by concerns that the auto sector will suffer from weakness in the U.S. economy.

The stock was down 3.3 percent at 90.51 euros by 0736 GMT, suffering the second biggest loss in France's CAC 40 index.

Eleven analysts polled by Reuters had on average predicted operating income before non-recurring items of 857.2 million.

Chief Financial Officer Jean-Dominique Senard said the U.S. economy remained hesitant but Europe was stronger than expected. We did not expect this dynamism, pulled by the east European markets, he told a news conference.

Michelin's operating margin rose 2.2 points to 10.2 percent and it confirmed its 2007 forecast of a substantial improvement relative to 2006.

It said its full-year recurring operating margin was expected to approach the 10.2 percent of the first half, despite higher raw material costs. It had previously expected a tangible increase.

First-half sales rose 4.7 percent to 8.40 billion euros, or an 8.2 percent rise at constant exchange rates.

Net income rose 57.6 percent to 436.3 million. There was a negative free cash flow of 31 million euros, but this was an improvement of 382 million euros from a year ago.

Michelin said it was boosted by price increases implemented during the second half of 2006 and cost cuts.

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Managing partner Michel Rollier reaffirmed the group's 2010 objective of a return on capital employed (ROCE) of at least 10 percent and significantly positive free cash flow.

For the first half of 2007, the ROCE was 9.0 percent.

We will press ahead with the major programmes undertaken to reduce our overhead costs and optimise our industrial base worldwide, he said. Michelin has closed a site in Canada, sold plantations in Nigeria and reorganised production in France.

Michelin said it expected higher raw material prices to have a negative impact of 60 million euros in 2007 compared with 2006.

Exchange rate fluctuations, especially the high euro, had a negative effect of 104 million euros on group operating income in the first half. The exchange rates eroded sales by 3.2 percent.

Senard said the recently high euro had produced a slightly negative impact on sales but reduced energy and rubber costs.

Michelin said it expected European truck tyre markets to remain strong this year and original equipment demand should accelerate. In North America the replacement market is expected to pick up slightly but this will not lead to full year growth.

The passenger car and light truck replacement market should post moderate growth in all regions.

Michelin's main rival is Bridgestone of Japan which last month increased its profit forecast by 18 percent due to the weak yen. Italy's Pirelli on Thursday reported a 6 percent rise in first half profit at its core tyre business.

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