Russia 's OAO Gazprom (GAZP.RS), the world's largest producer of natural gas, Thursday posted an eightfold increase in fourth-quarter net profit on rising output and demand, as well as a one-time financial gain.

The better-than-expected result sent Gazprom's shares higher. At 1318 GMT, Gazprom's ADRs were trading up 3.4% at $23.94 in London .

State-controlled Gazprom saw production fall 13% last year, as demand plummeted amid an economic downturn and competition increased from alternative energy sources in Europe .

But cold weather and signs of a pickup in demand in Europe --the company's key export market--boosted net profit for the October to December period to 308.7 billion rubles ($10.5 billion), as calculated by Dow Jones Newswires from annual figures. That compares with RUB37.52 billion during the same period a year earlier and above the RUB214.61 billion average of 11 analysts polled by Dow Jones Newswires.

The quarterly net profit figure was, however, inflated by a non-cash deal with Germany's E.ON Ruhrgas AG in October last year, while 2008's fourth-quarter numbers were dragged down by a big foreign exchange loss.

"The main message is a clear start of a fundamental recovery trend, which is due to accelerate in the first quarter of 2010," said analyst Lev Snykov.

Gazprom's shares almost doubled last year amid a strong recovery in Russian equities, but traced its peers in the beginning of 2009.

Despite lower demand for most of 2009, Gazprom posted a record full-year net profit at RUB779.59 billion, boosted by a paper gain on a revaluation of its oil unit OAO Gazprom Neft (SIBN.RS). Profit for the year was also the highest in the world, beating U.S. oil major Exxon Mobil Corp. (XOM), which posted net income at $19.3 billion for the year.

Revenue in the last three months of 2009 slipped to RUB580.5 billion from RUB946.0 billion a year earlier, as gas sales last year to Europe and countries from the former Soviet Union fell.

Analysts had expected fourth-quarter sales of RUB937.4 billion. The lower revenue was due to a difference in accounting practice, which excludes trading of gas from the posted sales figure.

Operating profit totaled RUB856.9 billion in 2009, down from RUB1.260 trillion a year earlier.

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