BMW's cost cutting measures have begun to gain traction as the German premium automaker posted a better-than-expected 2009 profit despite lower vehicle production.

BMW said on Thursday its pretax profit rose 18 per cent to 413 million euros ($560.4 million), easily surpassing the 253 million euros forecast by analysts, even though auto production fell 13 per cent during the same period.

"We are cautiously optimistic going into the new year," Chief Executive Norbert Reithofer said, adding new models and demand in markets such as China and Brazil would continue to drive sales growth.

At 1159 GMT, BMW shares were trading 0.9 per cent higher at 32.535 euros, in line with European car sector index.

BMW earnings surpassed those of rival Mercedes-Benz but were behind those of Bavarian competitor Audi, which benefits from the economies of scale at parent company Volkswagen.

This becomes increasingly important as premium carmakers are forced to move downmarket, offering smaller, less lucrative models and engines needed to cut their carbon footprint ahead of ever-stricter emission regulations.

Net profit sank 47 per cent to 210 million euros. It was the group's lowest annual net income since a 2.5 billion euro loss in 1999 but the figure beat analyst expectations for 174 million.

BMW said it had a loss before interest and taxes in the automotive segment but a profit before interest and taxes of 93 million euros in the fourth quarter.

BMW has forecast group retail volumes would grow by a single-digit per centage rate this year to over 1.3 million vehicles thanks in part to a raft of new models, including the 5 Series saloon that hits dealerships this month and the September debut of the Mini Countryman SUV.

For the first two months, vehicle sales grew just over 15 per cent although the rate was flattered by extremely weak comparison since demand for all premium car brands plummeted early last year.

BMW holds its annual news conference on March 17 in Munich, where it traditionally issues its full-year earnings guidance. It will hold an analyst and investor conference the following day. – Reuters