NEW YORK (CNN/Money) - General Motors Corp. raced past Wall Street forecasts Tuesday with an unexpected sharp gain in operating earnings in the first quarter, and raised its earnings guidance for the current year as well.

The world's largest automaker earned net income of $1.3 billion, or $2.25 a diluted share, in the quarter, up from $1 billion, or $1.84 a share, a year earlier, excluding special items and results from the Hughes Electronics unit sold at the end of last year.

Analysts surveyed by earnings tracker First Call had a consensus EPS forecast of $1.79 a share. Net income a year earlier was $1.5 billion, or $2.71 a share, after a gain from the sale of a defense unit.

The company raised its 2004 earnings guidance to $7 a share from its earlier target of $6 to $6.50 a share. First Call's full-year forecast calls for EPS of $6.30, up from $5.62 in 2003.

It also said second quarter EPS should come in at between $2.00 to $2.25, well above the First Call consensus forecast of $1.88 as well as year-ago EPS of $1.58. The range of analyst EPS estimates for the current quarter is $1.66 to $2.18.

GM posted the gains despite a fall in earnings and revenue at its core North American automotive operations, and rising losses at its European auto unit that it described as "below expectations."

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But it posted a healthy $200 million gain in earnings from its Asian-Pacific auto unit, which allowed the auto operations worldwide to record a 12 percent rise in income to $611 million. It also increased income from its GMAC finance unit, despite a decline in income from home mortgages in the quarter.

Overall revenue in the quarter rose to $47.8 billion from $46.3 billion a year earlier. The number of vehicles delivered worldwide was up about 5 percent to 2.1 million. U.S. vehicle deliveries also climbed about 5 percent, as the company said it saw flat U.S. market share, although some independent sales trackers reported a slight increase in the company's share in the period.

"The automotive market in North America remains very competitive, and our results reflect that," said a statement from Chairman Rick Wagoner. "Improving market share and profitability remain an important priority."

Part of GM's gains are coming at the expense of the other members of the traditional Big Three -- Ford Motor Co. (F: Research, Estimates), which reports its results Wednesday, and Chrysler Group, the North American unit of DaimlerChrysler AG (DCX: Research, Estimates).

Both Ford and DaimlerChrysler lost market share in the quarter, according to sales tracker Autodata. Ford sales fell 1.5 percent while DaimlerChrysler posted a slight increase but not enough to keep up the overall industry sales. By comparison the Asian-based automakers posted nearly a 10 percent gain in combined sales and nearly a 2 percentage point gain in market share.

But where GM is making gains on the Asian automakers is actually closer to their home turf.

GM said its share of the overall Asian-Pacific market rose to 4.7 percent from 4.3 percent, even as the market itself posted growth to a 17.5 million vehicle annual sales rate, or a bit larger than the U.S. market. Much of that gain came in China, where GM said its share increased to 9.5 percent from 6.7 percent, while the size of the market grew more than 28 percent from year-earlier levels to a 5.7 million vehicle sales pace.

Chief Financial Officer John Devine said the improvement in Asia is a key reason for the improved earnings outlook, along with a brighter picture for the company's GMAC finance unit and an effective lowering of its U.S. tax rate.

Devine said that GMAC should be able to easily exceed its target of earnings of $2 billion during this year. It had income of $786 million, up about 12 percent, in the quarter. Devine said the GM is expecting to see increased U.S. interest rates later this year and again early in 2005, but that the GMAC forecasts take that into account.

The improved tax rate is mostly due to the passage of the Medicare prescription drug benefit, which gives GM credit for payments it makes to cover retirees' health care costs. Devine said change in the law should allow GM to keep a corporate-wide tax rate close to 21 percent going forward, down from about 26 percent. It should post an even lower rate in the second quarter when it sees a settlement involving past tax payments.

Devine also said signs of an improving economy U.S. are a factor in the company's improved outlook, although the company is not looking for significantly greater income from its North American auto operations than it was when it made its original guidance in January.

"We don't normally take the earnings estimate up at the end of the first quarter. The outlook is better now than it was three months ago," he said.

Shares of GM (GM: up $2.30 to $48.45, Research, Estimates), a component of the Dow Jones industrial average, were up as much as 5.2 percent during Tuesday's session.