By James B. Kelleher

CHICAGO (Reuters) - Deere & Co. (DE.N: Quote, Profile, Research), the world's largest maker of agricultural equipment, reported higher-than-expected quarterly profit on Wednesday and raised its fiscal-year outlook, sending its shares up as much as nearly 11 percent to an all-time high.

The results, which reflected strong sales to farmers and foresters, suggested a long-awaited ethanol-related spurt in spending on farm equipment might finally be under way.

Profit rose to $238.7 million, or $1.04 a share, in the first quarter ended January 31, from $235.9 million, or 99 cents a share, a year earlier. Analysts on average were expecting 81 cents a share, according to Reuters Estimates.

Sales rose 5 percent to $4.2 billion.

Deere raised its forecast for fiscal 2007 earnings to $1.4 billion from $1.33 billion, saying it expected an increase in agricultural equipment and commercial and consumer business to offset a decline in construction sales.

"Originally they were being really cautious about what the ag market was going to do in '07 and building out 2008 to be a little bit stronger," said Morningstar analyst John Kearney.

"It looks like now 2007 isn't going to be so bad, which -- if you go on what they've been saying -- feeds hopes for an even stronger 2008."

ETHANOL BOOST