German-US automaker DaimlerChrysler AG acknowledged that half of its operating profit in the second quarter was generated by favourable currency trading, casting doubt about what had been considered a fairly strong quarter for the German-US car maker.

Last month, the company reported US$641 million in second-quarter operating profits. Although that was down 62 per cent from the second quarter of 2002, it still beat some analysts' expectations.

At the time, DaimlerChrysler said currency trading to soften the impact of the euro's rise against the dollar had had a "positive effect" but did not detail the extent of its gains.

On Wednesday, the company said about US$350 million in operating profit were generated through foreign exchange transactions, confirming a story to be published yesterday in a German news magazine.

Analysts said that helps explain how DaimlerChrysler seemed to hold its margins despite a brutal price war in North America and the euro's strength against the dollar, yen and other foreign currencies.

"They exceeded my expectations, and I was trying to find out how they did it, given the difficulties in the US market," said Michael Raab at Sal Oppenheim & Cie in Frankfurt.

In a report last month, J.P. Morgan said it was a "great mystery" how DaimlerChrysler managed to increase its net cash position by US$700 million in the quarter despite paying out US$1.5 billion in dividends.

Raab said DaimlerChrysler deserves some credit for managing the dollar's decline effectively.

"But the thing is," he added, "if 50 per cent of your operating profit is coming from trading, that's not too splendid."

Hartmut Schick, a DaimlerChrysler spokesman in Stuttgart, defended the company's practice of including currency gains in "operating" figures.

"You can argue this is not operations, but it really is operational business," he said. "If you're selling cars and getting a better exchange rate, you're smart. I really don't think this is a big deal."

He acknowledged, however, that the company may see less positive currency effects in future quarters now that the dollar is regaining some strength.

DaimlerChrysler sums up its currency gains or losses each quarter, but does not disclose the figure in its earnings announcement, Schick said. If analysts ask for it, the company provides it. He added that he would prefer not to release the figure at all. "It's confusing enough," he said.

This is the second time in three months that DaimlerChrysler has rankled analysts with surprising earnings news. In early June, it issued a profit warning, saying its Chrysler division would lose about US$1 billion in the second quarter.

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