FRANKFURT, Germany (AP) -- Volkswagen AG, Europe's biggest automaker by sales, said Friday that its profit in the second quarter and first six months of 2007 soared on better-than-expected sales in Europe and China along with cost-cutting efforts at home in Germany.

The Wolfsburg-based company earned euro1.22 billion (US$1.67 billion) in the second quarter, up 42 percent from the euro859 million it posted a year earlier, as sales rose 6.2 percent to euro28.21 billion (US$38.71 billion) compared with euro26.56 billion last year.

In the first six months of the year, the company earned euro1.96 billion (US$2.69 billion), up 65 percent from nearly euro1.2 billion a year earlier.

Volkswagen also expects its 2007 sales results to be better than the euro104.9 billion it reported in 2006.

"We have significantly improved our financial position in the first six months and will sell more than 6 million vehicles this year for the first time," Chief Financial Officer Hans Dieter Poetsche said. "We are therefore forecasting that the Volkswagen Group will already generate a profit before tax of at least euro5.1 billion (US$7 billion) in 2007."

Six-month sales rose 5.7 percent to euro54.8 billion (US$75.2 billion) from euro51.8 billion last year, because of growing demand in Europe and Asia, including China, along with customer demand for new luxury sedans by Audi AG. Small car sales by its Spanish unit SEAT and the Czech car marker Skoda were also stronger.

"The good news came from all brands, with the bulk of the earnings improvement coming from VW and continued strong performance by Audi," said Stephen Cheetham, senior European auto analyst at Sanford C. Bernstein Ltd. in London. "Financial Services is still going strong with no sign so far of a squeeze from rising interest rates."

Poetsch said that Volkswagen so far has sold 3.1 million vehicles in the first six months of the year, up 7.8 percent from 2006.

Shares of Volkswagen gained more than 3.3 percent to euro124.60 (US$170.98) on the improved figures.

The increase came as the company has moved beyond wide-ranging cost-cutting efforts that were launched in 2006 under the aegis of former chief executive Bernd Pischetsrieder. That saw a 20 percent cut in its German labor force and an agreement for employees to work another 4.2 hours per week without extra pay.

Pischetsreider's replacement, Martin Winterkorn, has kept up the changes. Earlier this year, he oversaw the reorganization of the company's brands into new units, with Audi, Bentley, Bugatti and Lamborghini in one group and VW, Seat and Skoda in another.

Winterkorn, the former head of Volkswagen's Audi division, became CEO at the beginning of this year, and has since taken control of the company's core VW brand.

Volkswagen said it would reach a pretax profit of euro5.1 billion (US$7 billion) this year, beating its previous estimates of such a goal in 2008 for the first time.

Its pretax profit for the second quarter was euro1.94 billion (US$2.66 billion) compared with euro339 million last year, while its six-month pretax profit rose to euro3.01 billion (US$4.13 billion) from euro751 million in the first six months of 2006.