By Ben Klayman

DETROIT (Reuters) - AutoNation Inc (AN.N: Quote, Profile, Research), the largest U.S. car dealership, on Thursday posted a lower-than-expected quarterly profit as the weak U.S. housing market hurt demand in the company's critical California and Florida markets.

However, shares were up over 4.5 percent in afternoon trading as investors were cheered by U.S. automaker Ford Motor Co's (F.N: Quote, Profile, Research) unexpected quarterly profit.

"Ford is pulling up all auto-related stocks today. That's probably the major reason the (AutoNation) stock is up," said Tim Ghriskey, chief investment officer with Solaris Asset Management in New York, which does not own AutoNation shares but follows the auto sector.

Ghriskey added that AutoNation also is gaining share from rivals despite the tough market.

AutoNation's net income in the first quarter fell 35 percent to $50.7 million, or 28 cents a share, from $77.6 million, or 37 cents a share, in the year-earlier quarter.

Earnings from continuing operations were 31 cents a share, 3 cents less than what analysts polled by Reuters Estimates had expected on average.

Vehicle sales have been hit as the housing crisis and tight credit markets have led consumers to dial back spending on big purchases. Another big dealer, Asbury Automotive Group Inc (ABG.N: Quote, Profile, Research), on Thursday posted a weaker-than-expected profit, also blaming weak demand in Florida and California.

Ford cut its 2008 U.S. sales outlook, while the previous day General Motors Corp (GM.N: Quote, Profile, Research) forecast that second-quarter U.S. auto industry sales would be weaker than the first. AutoNation has not been spared the pain.