The consumer reaction to the new Grande Punto has been positive

Even though first-quarter net profit dropped to 138m euros (�95m; $174.5m) in the first three months of 2006, it was more than analysts had forecast.

At the same time, Fiat Auto announced a market-beating profit of 57m euros.

It was the division's second quarter in the black after five years of losses as demand for the its new Punto increased.

Analysts remained cautious, however, voicing concerns about the firm's outlook and its ability of fend off tough competition from rival manufacturers including Japan's Toyota, and France's Renault and PSA Peugeot Citroen.

"Fiat Auto is a long way from genuine profitability," said Stephen Cheetham, an analyst at Sanford C Bernstein. "Everyone thinks things are easy at Fiat, but they are not."

Fiat shares - which have doubled in value over the past 12 months and are up more than 50% this year - fell 0.5% to 11.22 euros in Milan on Wednesday.

Better times?

Fiat's Grande Punto, the bigger version of the carmaker's long-lived hatchback, has heralded something of a change in fortunes for the Turin carmaker, which also owns the Lancia, Alfa Romeo, Ferrari and Maserati marques.

Between the car's launch in September 2005 and the end of March, Fiat said it received 210,000 orders for the Grande Punto.

In the UK alone, over 5,600 of the cars were sold during March - its first full month of sales.

We are beginning to see the benefits of the work we have done Sergio Marchionne, chief executive, Fiat Auto

Wednesday's earnings report was welcome news for chief executive Sergio Marchionne, who has been pushing hard to improve efficiency at Fiat's Italian plants.

Had the Grande Punto flopped, he could well have been out of a job.

Instead, Fiat is on target to sell 360,000 of the cars in 2006 - the goal Fiat's boss set at the launch of the Punto - and Mr Marchionne has raised Fiat Auto's estimated trading profit in 2006 to 200m euros from 100m euros.

"We are beginning to see the benefits of the work we have done," Mr Marchionne said.

Fiat set out its stall last year, saying it planned to launch 20 new cars by 2008.

As well as the Punto and the Sedici SUV - which received 16,000 orders in the weeks after its launch - there has been the Panda Cross and the Sportswagon version of the Alfa Romeo 159.