United Parcel Service Inc, the world's largest package delivery service, on Tuesday said it expected a sharp increase in earnings in 2010 as the U.S. economy improves.

UPS said it expected 2010 profit of $2.70 to $3.05 per share, an increase of 17 percent to 32 percent over 2009. The company's forecast creates a midpoint of $2.87, higher than the average estimate of $2.81, according to Thomson Reuters I/B/E/S.

"As we look out over 2010, we see a story of a gradually firming economy," improved volumes and cost management, Chief Financial Officer Kurt Kuehn said during a conference call with analysts.

In the fourth quarter, profit beat analyst expectations but still fell from a year ago to $1.26 billion, or 75 cents per share, from $1.38 billion, or 83 cents per share.

"UPS is a quality company and it's going to survive, but don't let that mask the fact that this recession really hurt," said Edward Jones analyst Dan Ortwerth, who has a "buy" on the shares. "That's three years worth of pain."

International strength drove fourth-quarter profits, the company said, while the recession continued to manifest itself in its domestic results. Operating profit in UPS's U.S. domestic package business fell 18 percent to $764 million.

"The recovery seems more uncertain here," Ortwerth said.

Analysts on average were expecting earnings of 74 cents per share, according to Thomson Reuters I/B/E/S.

Last month, the Atlanta-based company raised its fourth-quarter forecast to a range of 73 cents to 75 cents a share, citing better-than-expected domestic and international performance and cost savings.

Fourth-quarter revenue fell 2.5 percent to $12.38 billion.

The company and rival FedEx Corp are both considered to be economic bellwethers because they move such a huge chunk of the nation's shipping.

UPS shares rose about 55 cents, or nearly 1 percent, to $58.97 in early trading on the New York Stock Exchange.