However, the world's seventh-largest carmaker reduced its profit margin forecast for Latin America given tough market conditions in Brazil and uncertain prospects for recovery there.

FCA (>> Fiat Chrysler Automobiles NV) also said that while it was committed to the relaunch of Alfa Romeo, one of the cornerstones of its business plan along with Jeep and Maserati, the sporty brand's planned product line up would only be completed by mid-2020.

The carmaker said it now saw adjusted operating profit of 8.7-9.8 billion euros in 2018 and revenues of around 136 billion euros, up from previous forecasts of 8.3-9.4 billion and around 129 billion respectively.

The comparison forecasts have been updated to exclude luxury unit Ferrari, which was spun off at the start of this year.

The upgrade came as a surprise to financial markets, with most analysts forecasting the turnaround plan would fall short of its initial goals due to model delays, deferred investments and slowing demand in Asia and Latin America.

"These targets were revised upwards when previous targets were already well above consensus," one trader said.

At 1545 GMT, FCA's shares in Milan were flat, broadly in line with European blue-chips <.FTEU3>.

FCA said it also expected to have net cash of 4-5 billion euros at the end of its 2014-18 plan, much higher than the previous forecast of 1.9-2.4 billion.

Earlier, the company reported a 39 percent rise in fourth-quarter adjusted operating profit to 1.64 billion euros, beating analysts' average forecast of 1.3 billion. Sales rose 11 percent to 30.1 billion euros, also above expectations.

Traders said that while the quarterly performance was very strong and the company impressed with its debt cutting efforts, the guidance for this year was cautious. FCA forecast an adjusted operating profit of more than 5 billion euros and net debt falling to below 5 billion euros for 2016.

"The question remains how FCA will fare should the U.S. market turn," another trader said.

FCA's North American operations accounted for nearly 85 percent of group profits last year, helped by higher sales of Jeep SUVs and RAM trucks, as well as favorable currency moves.

Its adjusted operating margin in the region rose to 7.1 percent in the last quarter as the company seeks to close the gap with larger U.S. rivals GM (>> General Motors Company) and Ford (>> Ford Motor Company).

The fourth-quarter numbers still included luxury unit Ferrari. Adjusting for that, net industrial debt fell to 5 billion euros from 7.85 billion at the end of September.

($1 = 0.9199 euros)

(Additional reporting by Danilo Masoni and Stefano Rebaudo in Milan and Bernie Woodall in Detroit; Editing by Keith Weir and Mark Potter)

By Agnieszka Flak