Caterpillar Inc. (CAT) Thursday reported a 34 percent jump in second-quarter profit and raised its full-year outlook, citing strength in key markets and industries and an ability to maintain high prices for its mining and construction equipment.

But Caterpillar shares fell slightly after a run-up in advance of the earnings.

Net income rose to $760 million, or $1.08 a share, from $566 million, or 80 cents a share, in the year-earlier quarter.

Sales increased 23 percent to $9.36 billion, fueled by double-digit revenue growth at each of the company's three divisions - machinery, engines and financial services.

The results at the Dow Jones Industrial Average component handily beat Wall Street forecasts of $1.01 per share on sales of $8.49 billion.

"It's another smashing, rousing success of a quarter," said analyst Scott Burns of Morningstar in Chicago. Burns said Caterpillar was benefiting from a continued build-up of infrastructure worldwide and demand for commodities.

"The boom in the commodity market has caught everybody by surprise," he said. "There was definite underinvestment in commodity production and power generation the past few years."

But investors sold off shares of Caterpillar on the news, sending the stock down 64 cents, or 1.2 percent, to $52.56 on the New York Stock Exchange (search).

The stock, an industrial bellwether, had jumped more than 25 percent since mid-April, and was up 9 percent this year, outperforming both the Standard & Poor's 500 index and the Dow Jones industrial average.

"It's a buy on the rumor, sell on the news, reaction," said analyst Eli Lustgarten of Longbow Research. "Caterpillar stock was being driven by increasing expectations, which they met."

Caterpillar raised its 2005 earnings forecast to a range of $4 to $4.20, compared with its earlier forecast of $3.89 to $4.03 and above analysts' average estimate of $3.96.

It forecast 2005 sales would grow 18 percent to 20 percent, up from its earlier estimate of 16 percent to 18 percent.

Caterpillar said it expects low interest rates and strong commodity prices to continue to drive demand in the near term. It also said it expects continued demand from the power and energy industries.

"Our global markets continue to exhibit the fundamental strengths needed for further growth," Caterpillar Chairman and Chief Executive Jim Owens said in a statement.

"Somewhat better prices were a positive factor in the profit improvement, and for the most part, we expect the price increases announced earlier this year to hold in the marketplace," Owens said.

Caterpillar said the high cost of raw materials remained a challenge, though prices of some types of steel have begun to decline. Prices of tires and copper remain high and it said raw materials costs in the second half of 2005 will be higher than in early 2004.

Machinery sales rose 25 percent during the quarter to $6 billion. Engine sales rose 22 percent to $2.7 billion, and sales in its financial services decision rose 19 percent to $576 million.