Caterpillar Inc. (CAT) reported a 66% fall in second-quarter profit Tuesday, but raised its full-year guidance as aggressive cost-cutting started to yield results.

The world's largest construction and mining equipment maker lifted its 2009 forecast to $1.15 to $2.25 a share despite trimming revenue guidance to $32 billion to $36 billion.

The new guidance compares with its view in April for earnings $1.25 a share on revenue of $31.5 billion to $38.5 billion.

Caterpillar's shares rose 12.6% to $41.25 in pre-market trading, as the company's second quarter earnings exceeded Wall Street's expectations by a wide margin.

"There is still a great deal of economic uncertainty in the world, but we are seeing signs of stabilization that we hope will set the foundation for an eventual recovery," said Chairman and Chief Executive Jim Owens, in a written statement.

Owens said Caterpillar customers are being helped by improved access to credit markets and $1.7 trillion in government-sponsored economic stimulus spending on infrastructure construction projects worldwide.

For the second-quarter, Caterpillar reported income of $371 million, or 60 cents a share, down from $1.1 billion, or $1.74 a share, a year earlier.

The latest results included $85 million in costs related to job cuts. Excluding those items, earnings were 72 cents a share. Net sales decreased 41% to nearly $8 billion. Analysts polled by Thomson Reuters expected earnings of 22 cents and revenue of $8.86 billion.

Machinery sales tumbled 49% and engine sales slid 32%.

The company said it has shed 17,100 full-time employees since the end of 2008 and cut more than 17,000 temporary and part-time workers. The company also imposed rolling layoffs for the remaining employees and reduced compensation for top executives.

Caterpillar said it hasn't ruled out additional employee layoffs and warned that its third-quarter sales may be particularly weak as dealers clear out remaining inventories.

The infrastructure and commodities boom powered Caterpillar for about five years - helping it more than double its annual revenue from 2002 to 2007 - but collapsed late last year. Overseas sales offset a slumping U.S. housing construction market early in 2008, but late in the year a pullback in commodities prices and global demand hit results.

Analysts at Bank of America-Merrill Lynch said Monday that demand for construction machinery made by Caterpillar likely reached a bottom during the second quarter and will begin a recovery during the first half of next year.

Analysts had been taking an interest in whether Caterpillar would cut its 2009 revenue projection again, as a cut would likely signal a further decline in machinery demand and delay the anticipated recovery next year.

-By Bob Tita, Dow Jones Newswires; 312-750-4129; robert.tita@dowjones.com