By Christiaan Hetzner and Michael Shields

FRANKFURT (Reuters) - The world's two largest premium carmakers, BMW (BMWG.DE: Quote, Profile, Research) and Daimler (DAIGn.DE: Quote, Profile, Research), brushed off U.S. economic gloom and stuck to their profit targets after putting money aside to weather a fall in used-car prices.

BMW soothed market fears of a further deterioration in profitability, reporting on Tuesday underlying operating margins at its core automotive business rose more than expected in the first quarter and saying the worst was likely behind it.

Shares in BMW, which warned last week that first-quarter profits would take a hit from the U.S. credit crunch, bucked moderate declines in the broader market and outperformed smaller rival Daimler, which delivered worse-than-expected earnings.

"Writedowns on BMW's lease book could total 1 billion euros ($1.56 billion) by the end of 2009 and we see a clear risk that volumes could decline -- not just in the U.S. -- as it raises its leasing rates to reflect falling residual values," WestLB analyst Adam Hull cautioned.

Daimler, maker of Mercedes-Benz and Smart cars, said it too had built up enough provisions to tough out the ongoing storm, despite concerns that U.S. used-car buyers were not paying enough for vehicles coming off lease.

Stripping out one-off items, BMW's automobile division improved its operating margin by 60 basis points to 6.4 percent in the first quarter -- behind that of Mercedes but ahead of German rival Audi, the luxury unit of Volkswagen AG (VOWG.DE: Quote, Profile, Research).

Overall operating profit at BMW fell 9.3 percent to 827 million euros due to declining demand for used cars and higher risk provisions for leased vehicles, as well as rising bad debts and payment delays in its financial services business.

"Unlike the new-car business, the pre-owned business clearly felt the impact of the loss in trust and the slowing economy -- especially in North America," Chief Financial Officer Michael Ganal told reporters during a conference call.