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The maker of Nescafe coffee and Gerber baby food said it was well placed to cope with rising commodity prices by making cost savings and pushing up its own prices.

"We saw a significant uptick in raw material prices in the second half," Chief Financial Officer Jim Singh said in a conference call on Thursday. "We expect 2.5-3 billion Swiss francs additional input costs in 2011."

The increase would be about 8-10 percent on a cost base of about 30 billion Swiss francs, a Nestle spokesman said.

Nestle can rely on its strong presence in emerging markets, where underlying sales growth was 11.5 percent in 2010, and the appeal of brands such as KitKat chocolate bars to offset rising costs for milk, cocoa, coffee, sugar and grain.

"I cannot tell you what the pricing will be, that depends on the different markets," Singh said.

Underlying sales growth in 2010 rose 6 percent to beat a Reuters forecast of 5.5 percent, and accelerated to 6.4 percent in the fourth quarter, making the group confident of meeting its long-standing target of 5-6 percent growth in 2011.

Nestle shares were up 1.6 percent at 0852 GMT, outperforming a 0.8 percent rise in the STOXX 600 European Food & Beverage index.

Peers Danone and Unilever recently said they were confident about passing on higher costs, but Kraft Foods cut its 2011 forecast for earnings growth because it expects some consumers to be put off by price increases.

"We see Nestle as best placed to escape the volatility of costs which are impacting the food sector in 2011," Deborah Aitken, an analyst at brokers Bryan Garnier said.

Full-year net profit at Nestle rose to 34.2 billion Swiss francs, including the proceeds from the sale of its remaining stake in eyecare group Alcon to Novartis.

Annual sales at its Nespresso premium coffee capsules brand exceeded 3 billion Swiss francs ($3.1 billion) for the first time, Nestle said.

"A very strong set of figures with underlying earnings ... on the back of stronger-than-expected top-line growth driven by emerging markets and Asia. Its outlook statement is reassuring," Kepler Research analyst Jon Cox said.

Vontobel analyst Jean-Philippe Bertschy said the dividend increase of 15.6 percent to 1.85 francs per share was high, but the lack of comment on an additional share buyback was a bit disappointing.

Nestle currently has a 10 billion Swiss franc share buyback under way and is expected to conclude it in the first half of the year.

Unrest spreading across the oil-rich Middle East and North Africa also helped boost the appeal of safe-haven assets, with Swiss francs gaining while yields on U.S. 10-year Treasuries and Bunds eased.

Robust earnings and merger activity have boosted global equities recently. Data from Thomson Reuters StarMine showed three quarters of U.S. companies met or beat market expectations for earnings in the fourth quarter.

"Many people are still optimistic about the market because the global economy is doing well and earnings for large U.S. companies have been quite good," said Heinz-Gerd Sonnenschein, equity markets strategist at Deutsche Postbank in Bonn.

Adding to positive sentiment, minutes from the U.S. Federal Reserve's Jan 25-26 policy session showed officials raised their forecasts for economic growth last month, though they still expected slow progress in reducing unemployment.

World equities measured by the MSCI All-Country World Index .MIWD00000PUS rose 0.3 percent, hitting their highest level since August 2008.

The index has risen 4.7 percent so far this year, but its valuations remain modest against a 10-year average. The MSCI global index has a 12-month forward price-to-earnings of 12.5 times against a 10-year average of 14.8, Thomson Reuters Datastream shows.

The MSCI emerging market index .MSCIEF put on 0.3 percent, though it is down 3.4 percent for the year as many investors shift out of the booming developing markets on concerns over inflation.

EMERGING MARKETS

However, some remain positive on emerging market shares.

"Emerging markets earnings remain solid and there are reasons to expect they will improve relative to developed markets," Citigroup said in a note. "Emerging market relative valuations are at their lowest level since 2008. The pullback provides an opportunity to buy." Europe's FTSEurofirst 300 .FTEU3 gained 0.2 percent, aided by forecast-beating earnings from Swiss food group Nestle (NESN.VX) and computer consultancy Capgemini (CAPP.PA). In Asia, Japanese shares .N225 added 0.3 percent, up for the fourth straight session to a 9-1/2 month closing high.

London crude prices extended gains to hold at 2-1/2 year highs of more than $104 a barrel, as fresh Israel-Iran tension fed spreading unrest in the Middle East and stoked fears of a disruption of oil flows in the region.

Copper, however, fell for the third straight session, down 0.8 percent after hitting a record high on Monday.

The dollar was down 0.2 percent at 0.9567 Swiss francs, while the euro fell 0.3 percent to 1.2972 francs.

"If events in the Middle East do escalate we will see safe haven flows which will help the Swiss franc, but equities are still holding up for now," said Kenneth Broux, market economist at Lloyds.

The dollar, however, was up 0.1 percent against a basket of major currencies .DXY.

(Additional reporting by Harpreet Bhal, Scott Barber and Jessica Mortimer; Editing by John Stonestreet)

It reported underlying sales growth accelerated to 6.4 percent in the fourth quarter and said it was confident of achieving 5-6 percent sales growth and an improvement in earnings before interest and taxes (EBIT) margin in 2011.

"We are starting 2011 with continued momentum, well placed to face uncertainties ahead, including volatile raw material prices," the maker of Gerber baby food and Nescafe coffee said in a statement on Thursday.

Nestle can rely on its strong presence in emerging markets, where underlying sales growth was 11.5 percent in 2010, and the appeal of brands such as KitKat chocolate bars to offset rising costs for milk, cocoa, coffee, sugar and grain.

"2010 growth figures should give confidence on our ability to drive the top line organically in 2011," Chief Financial officer Jim Singh said in a conference call.

Underlying sales from Nestle's food and beverage business rose 6 percent to beat a Reuters forecast of 5.5 percent, making it confident of meeting its long-standing target of 5-6 percent growth in 2011.

Peers Danone (DANO.PA) and Unilever (ULVR.L) (UNc.AS) recently said they were confident about passing on higher costs but Kraft Foods (KFT.N) lowered its 2011 forecast for earnings growth because it expects some consumers to be put off by price increases.

"We see Nestle as best placed to escape the volatility of costs which are impacting the food sector in 2011," Deborah Aitken, an analyst at brokers Bryan Garnier said.

Full-year net profit at Nestle rose to 34.2 billion Swiss francs, including the proceeds from the sale of its remaining stake in eyecare group Alcon (ACL.N) to Novartis (NOVN.VX).

Annual sales at its premium coffee capsules Nespresso brand exceeded 3 billion Swiss francs ($3.1 billion) for the first time, Nestle said.

"A very strong set of figures with underlying earnings ... on the back of stronger-than-expected top-line growth driven by emerging markets and Asia. Its outlook statement is reassuring," Kepler Research analyst Jon Cox said.

Vontobel analyst Jean-Philippe Bertschy said the dividend increase of 15.6 percent to 1.85 francs per share was high but the lack of comment on an additional share buyback was a bit disappointing.

Nestle currently has a 10 billion Swiss franc share buyback under way and is expected to conclude it in the first half of the year.

Nestle shares, which gained 9 percent in 2010, lost about 4 percent since the beginning of the year, as investors worry about input cost inflation and forex headwinds.

They trade at a slight premium to Danone, Kraft and Unilever at about 14 times estimated 2012 earnings and were indicated to open 1.6 percent higher, pre-market data showed.

($1=.9669 Swiss Franc)

(Editing by David Hulmes and Sophie Walker)

Japanese shares .N225 led gains in the region, rising to a fresh 9- month peak, boosted by healthy corporate earnings, strong inflows from foreign investors and gains on Wall Street. .N

The Nikkei ended up 0.3 percent, with the broader Topix index .TOPX up 0.7 percent. .T

Stocks in most of Asia ex-Japan also edged higher with buying across the materials, consumers and the energy sectors, though benchmark indexes fell in Singapore .FTSTI and South Korea .KS11, where the government unveiled cash support for troubled saving banks.

The MSCI's index of Asia Pacific shares outside Japan .MIAPJ0000PUS was up 0.2 percent, moving further away from a two-month low tested last Friday.

Japanese shares have gained some 6 percent this year, making it the best-performing Asian market so far in 2011, while Asian stocks outside Japan .MIAPJ0000PUS are down more than 2 percent as worries about growing inflationary pressures prompt foreign investors to rotate money out of emerging economies.

While Asian central banks have scrambled to tighten policy, some countries are still perceived to be falling behind in fighting inflation, making investors cautious about adding exposure to these markets even though recent steep drops have made valuations more attractive.

"Emerging market tightening is falling short of what needs to be done due to concerns that higher rates will lead to currency strength," Brown Brothers Harriman strategists said in a note.

"As such, more and more EM countries are being viewed as behind the curve and so the current period of EM underperformance could continue until more signs are seen they are getting back ahead of the curve."

Halfway through the first quarter of 2011, the worst performing markets within the region are India, Philippines, Thailand and Indonesia though indications show that some of them may be nearing a floor for now.

Much of the outflows from these countries have gone into developed markets, which have also benefited from a steady flow of encouraging economic data and robust corporate earnings.

Minutes of the Fed's Jan 25-26 policy session on Wednesday showed officials were more confident on economic recovery, though the job market recovery remained a concern.

Japan has been one of the big beneficiaries of these flows with overseas investors net buyers of Japanese stocks last week for the 15th straight week, the longest buying streak since late 2005/early 2006, according to latest data.

Asia equity ETF redemptions slowed to just $55 million last week after averaging $369 million in the previous three weeks while local buying in India was the biggest since late 2009, data from Trim Tabs Investment Research showed, indicating some of the selling may have run its course.

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