Nov. 4 (Bloomberg) -- Nissan Motor Co. narrowed its full- year loss forecast and raised China sales projections 25 percent as economic growth and tax cuts spur demand in the world’s largest auto market so far this year.

Japan’s third-biggest automaker expects a 40 billion yen ($442 million) net loss in the year ending March, compared with a previous forecast of a 170 billion yen loss, it said in a statement today. The Yokohama-based company raised it sales target to 7 trillion yen from 6.95 trillion yen.

Nissan, headed by Chief Executive Officer Carlos Ghosn, joins Honda Motor Co. in raising its forecast as China sales offset slumping demand in the U.S. and Europe. The automaker’s vehicle sales in both North America and Europe fell about 12 percent in the quarter ended September.

“China is becoming vital for Nissan,” said Koji Endo, Managing Director at Advanced Research Japan Co., a Tokyo-based equity research firm. “Government stimulus programs have also worked better than Nissan expected.”

The automaker expects to sell 712,000 vehicles in China this fiscal year, up from an earlier forecast of 570,000. The carmaker increased its sales in the country 28 percent to 188,000 vehicles in the fiscal second quarter.

Nationwide vehicle sales in the world’s most populous country may rise 28 percent to 12 million this year, based on a government forecast. That’s likely enough to surpass the U.S. as the world’s largest auto market.

Renault SA, which owns 44 percent of Nissan, jumped as much as 5.2 percent as of 11:25 a.m. in Paris trading.

Toyota Motor Corp., the world’s biggest carmaker, will report second-quarter results tomorrow.

Quarterly Profit Falls

Nissan raised its fiscal-year sales forecast for the U.S. to 765,000 vehicles from 750,000 and boosted its outlook for Europe to 468,000 from 400,000.

The automaker rose 1.7 percent to close at 661 yen in Tokyo trading today, before the earnings announcement. The shares have gained 107 percent this year, compared with Honda’s 50 percent increase and Toyota’s 24 percent rise.

Nissan’s second-quarter net income fell to 25.5 billion yen from 73.5 billion yen a year earlier. The company’s U.S. sales fell 24 percent in the first 10 months of this year as drivers cut spending amid rising unemployment and falling wages.

The yen averaged 13 percent stronger against the dollar last quarter than a year earlier. The stronger Japanese currency cut Nissan’s first-half operating performance by 142.7 billion yen, Nissan said today.

The yen averaged 93.58 against the dollar in the quarter.

To contact the reporters on this story: Kiyori Ueno in Tokyo at kueno2@bloomberg.net; Tetsuya Komatsu in Tokyo at tekomatsu@bloomberg.net

Last Updated: November 4, 2009 05:40 EST