(Reuters) - Canada's Potash Corp of Saskatchewan (>> Potash Corporation of Saskatchewan Inc) reported a bigger-than-expected rise in quarterly profit on Thursday and raised its full-year outlook, citing lower costs and increased sales volumes.

Shares of the Saskatoon, Saskatchewan-based fertiliser producer rose 1.6 percent in early New York trading, touching a three-week high.

Revenue was lower in the first quarter due to weaker prices year over year, but it still exceeded Wall Street's expectations.

Potash prices have rebounded modestly since last year but remain low due to bloated global capacity and weakening farm incomes. Even so, Potash Corp forecast global potash demand of 61 million to 64 million tonnes this year, exceeding last year's 60 million tonnes.

Potash said it expected full-year earnings of 45 cents to 65 cents per share, up from its prior forecast of 35 cents to 55 cents.

The company raised the lower end of its estimate for 2017 potash sales to 8.9 million tonnes from 8.7 million tonnes, keeping the upper end at 9.4 million tonnes.

"We expect improved consumption trends and nutrient affordability in key markets to support potash demand and our results through the remainder of 2017," Chief Executive Officer Jochen Tilk said in a statement.

Bernstein analyst Jonas Oxgaard said earnings benefited from a lower tax rate as well as stronger sales in China, India and North America.

"(It) suggests the potash price recovery is in strong force," he said in a note.

But Citi analyst P.J. Juvekar said it was too early to envision a major recovery as rivals bring on new potash mines through next year.

Potash has nearly finished expanding its low-cost Rocanville, Saskatchewan, mine, which it says will help it weather weak crop nutrient prices.

In September, Potash and rival Agrium Inc (>> Agrium Inc.) announced plans to merge. The deal would combine Potash's fertiliser capacity, the world's largest, and Agrium's farm retail network, North America's biggest.

Tilk said the companies were working through the regulatory process and still expect the deal to close in mid-2017.

Net earnings nearly doubled to $149 million (116.27 million pounds), or 18 cents per share, in the quarter, beating the analysts' average estimate of 11 cents.

Revenue fell 8 percent to $1.11 billion, despite a 13 percent rise in potash sales volumes.

Analysts on average had expected $1.06 billion, according to Thomson Reuters I/B/E/S.

(Reporting by Swetha Gopinath in Bangalore and Rod Nickel in Winnipeg, Manitoba; Editing by Sriraj Kalluvila and Lisa Von Ahn)

By Swetha Gopinath and Rod Nickel

Stocks treated in this article : Agrium Inc., Potash Corporation of Saskatchewan Inc