* Sees 2010 Auto's EBIT margin in low single-digit percent range
* To maintain Auto's 1.46 bln-eur adj free cash flow in 2010
* CFO sees 2010 group vehicle sales up at least 5 percent
* Shares down 0.9 percent, European auto sector index gains
(Rewrites throughout adding new management comments)
By Christiaan Hetzner
MUNICH, March 17 (Reuters) - German carmaker BMW expects its rejuvenated model line-up to deliver a bounce in profits this year but remains cautious, not least because of fears that a fast-growing Chinese market could suddenly screech to a halt.
It hopes pretax profits will rise "significantly" from last year's depressed level of 413 million euros ($570 million), with better results expected across the group, but said on Wednesday its recovery would still be a gradual one.
"We want to see visible progress in 2010 towards achieving our profitability targets for 2012," Chief Executive Norbert Reithofer said at an annual news conference.
BMW's finance chief said he was certain that group vehicle sales would rise over 5 percent this year to above 1.3 million vehicles, but he cautioned it was too early to be more specific about earnings as considerable uncertainties remained and the revamped 5 Series car was only just going into showrooms.
"The full year effect will then first come next year, so we have to see that we make our ascent in stages as we move towards our 2012 targets," Friedrich Eichiner told Reuters on the sidelines of the company's annual earnings press conference.
For its core Automobiles business that means an operating return on sales in the low single-digit percentage range this year as opposed to a 0.6 percent loss last year. It has a target of reaching an 8-10 percent profit margin by 2012.
Adjusted for a likely third tranche of funding to move pension liabilities off its balance sheet this year, BMW expects the Autos business will finance itself by generating roughly the same amount of free cash as the 1.46 billion euros from 2009.
Shares in BMW underperformed other European auto stocks on Wednesday, since investors are already expecting profits to more than triple this year as premium car sales begin to recover. The shares closed down 0.9 percent at 32.5 euros while the Stoxx European autos sector index added 0.3 percent.
A Reuters poll of 10 analysts published before last week's results showed the market expects pretax profit to rise to 1.45 billion euros this year from just 413 million in 2009.
CHINA
Although China overtook the U.S. auto market last year as the world's largest, BMW executives fear its current double-digit growth rates are unsustainable.
"China risks overheating. If the brakes were applied to the economic growth it would impact our business, but we cannot say whether this will happen nor is it in our control," Eichiner told Reuters.
BMW group sales chief Ian Robertson said any attempt by Beijing to reduce economic growth could take effect just as rapidly as the 2009 stimulus package boosted growth.
"China is beginning to expand perhaps too quickly and I expect that the Chinese government will probably try and restrain some of that," Robertson said.
"When they boosted the economy (last year) it happened very quickly so if they do something to restrain it, it could be similar," BMW's head of sales explained.
He said retail volumes would "burst through the 100,000 mark" this year in China, currently its fourth biggest market with roughly 90,500 vehicles delivered to customers in 2009.
SMALLER CARS
Any slowdown in China could hurt its rival Audi, which overtook BMW, Mercedes and Porsche last year as the premium brand with the most earnings, mainly thanks to its dominance of the Chinese luxury car market and its ability to build small cars profitably together with parent VW.
Analysts believe BMW and Mercedes must find a way to getting the same economies of scale as Volkswagen and Audi, now that emission regulations are forcing premium carmakers to offer smaller cars with lower carbon emissions.
"We expect the premium small car segment to grow by 4-6 percent annually until 2020," Reithofer said, adding the group would cut its CO2 fleet emissions by at least 25 percent by 2020 from 2008 levels, when they were 156 grams per km.
Separately, Porsche published its first-half report on Wednesday that showed its sports car brand earned an operating margin of 10.4 percent in the six months to end-January. ($1=.7252 euros) (Editing by Greg Mahlich)