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The 9.0 magnitude earthquake that rocked northeastern Japan on March 11 forced Toyota and other Japanese automakers to cut output at home and abroad as they struggled to secure vital parts. The ensuing nuclear disaster and power shortages have compounded problems.

The massive disruption to production will likely mean Toyota will fall behind General Motors Co and possibly Volkswagen AG to rank third in global vehicle sales this year.

That possibility was downplayed by a Toyota official on Friday.

"We don't see it as necessary to be the largest automaker in the world," said Toyota's executive vice president, Satoshi Ozawa.

In addition to production problems, the carmaker has had to cope with a strengthening yen that cuts the value of overseas earnings and makes cars it builds in Japan for foreign markets more expensive to produce.

Toyota said on Friday it expects the dollar to average 82 yen in the current financial year to next March 31, against an averaged currency rate of a 86 yen-per-dollar last year.

The line in the sand to stay in profit, Toyota said, is a rate of 85 yen and sales of at least 6.6 million cars.

Toyota said on May 11 that the earthquake has contributed to a 52 percent fall in profit during the January-March quarter, but the company delayed unveiling the annual forecasts as it weighed the impact of the disaster on consumption and its supply chain.

"Structural weakness remains for Toyota, as it has a higher portion of domestic production than Honda and Nissan, which makes it vulnerable to the yen's strength," said Park Sang-Won an analyst at Eugene Investment & Securities in Seoul.

The world's biggest automaker cut its group-based global vehicle sales forecast for the 2011/12 business year to 7.24 million units from 7.3 million. The figures include sales at truck maker Hino Motors Ltd. and compact car maker Daihatsu Motor Co..

"We are studying production capabilities overseas. By increasing production toward the end of this year, we would like to regain market share that we have lost temporarily," Toyota's Ozawa said.

Toyota' latest earnings guidance compares with a consensus of a 434 billion yen operating profit based on the average of 23 forecasts by analysts polled by Thomson Reuters I/B/E/S. Operating profit in the year to March 2011 was 468.3 billion yen.

Toyota's shares have fallen 7.5 percent since the disaster, underperforming the benchmark Nikkei 225 average which lost 6.5 percent. Its shares on Friday rose 0.9 percent to close at 3,300 yen before the company released the profit forecast.

($1 = 80.305 Japanese Yen)

(Editing by Matt Driskill and Joseph Radford)

According to PIMCO's website on Thursday, Gross' $234 billion Total Return Fund (PTTRX.O) held 10 percent in non-U.S. developed bonds as of the end of May 31, up from just 6 percent as of the end of April.

Gross, who also helps oversee over $1.2 trillion in assets as co-chief investment officer at Pacific Investment Management Co., gingerly stepped up his exposure in Treasuries in May, holding 5 percent compared with 4 percent in April.

But Gross continues to be bearish on the United States.

As of May 31, Gross' Total Return fund held a negative 9 percent short position in a new investment category referred to as "liquid rates," which will include U.S. dollar-denominated interest-rate swaps, swaptions, options, and other derivatives. That position was unchanged from April.

The latest data makes it appear as if the fund's total short position is 9 percent -- up from the previously reported short position of 4 percent, but that could not be confirmed with PIMCO and cannot be determined by looking at the data provided.

PIMCO's money market and cash equivalents exposure dropped slightly to 35 percent as of May 31 from 37 percent as of the end of April. Gross also decreased his position in mortgages in May to 21 percent from 24 percent.

PIMCO's representatives declined further comment.

Gross' move to ratchet up his bearishness in March by taking his initial short position in U.S. government-related debt has been the subject of market criticism, given the furious rally in U.S. Treasuries.

The debt was categorized as Treasuries, TIPS, agencies, interest-rate swaps, Treasury futures and options and FDIC-guaranteed corporate securities. But the Total Return fund, as illustrated, has not been short in those U.S. government securities.

Last week, a source familiar with the matter told Reuters that Gross is not short Treasuries, but swaps. Swaps are an agreement between two parties to receive a fixed rate of interest and pay a floating rate (three-month LIBOR).

When an investor "shorts" a swap, he agrees to pay a fixed rate in exchange for a floating rate, which is just the reverse. To put it simply, he is selling a bond betting that yields will rise.

Gross told Reuters in early May that the only way he would purchase Treasuries in a big way again is if the United States heads into another recession.

Last week, the yield on the benchmark 10-year Treasury note fell below 3 percent, the first time since December, on further evidence the economic recovery is losing momentum -- and fast.

The 10-year's yield closed at 2.99 percent on Thursday.

He said: "Treasury yields are currently yielding substantially less than historical averages when compared with inflation. Perhaps the only justification for a further rally would be weak economic growth or a future recession that substantially lowered inflation and inflationary expectations."

Gross' fund is up 3.38 percent so far this year, outperforming 52 percent of his peers, according to Lipper as of May 31 data. Year to date through June 8, his fund is up 3.37 percent, outperforming 42 percent of his peers, Lipper added.

(Reporting by Jennifer Ablan; Editing by Kenneth Barry)

ECB President Jean-Claude Trichet signaled the hard line at the bank's monthly news conference, as new figures from Athens showed the Greek economy shrank by 5.5 percent in the first quarter of the year, a far sharper rate than expected.

The data cast fresh doubt on Greece's ability to meet targets for cutting its budget deficit, part of a 110 billion euro bailout agreed with the European Union and the International Monetary Fund in May last year.

The EU is now considering another aid package for Athens, and euro zone sources told Reuters on Thursday the new deal would total about 120 billion euros, with the EU and IMF providing up to half of that sum and the rest coming from Greek privatization revenues and private creditors.

How to involve the private sector is hotly contested within the single currency bloc.

German Finance Minister Wolfgang Schaeuble wrote to Trichet, the IMF and his euro zone partners earlier this week and proposed a swap in which private debt holders would trade in their Greek government bonds for new ones, giving Greece an extra seven years to work through its debt.

But ratings agencies said on Thursday that it might be impossible to conduct such a swap on a voluntary basis, while Moody's Investors Service warned a Greek default could impact the ratings of Ireland and Portugal, the two other euro zone countries that have required bailouts.

The ECB, the European Commission and countries including France have warned against any Greek debt restructuring that involves coercion of investors, for fear that it could alarm markets and spread contagion to bigger members of the euro zone such as Spain.

"We exclude all concepts which would not be purely voluntary, without any elements of compulsion," Trichet said. "We call for avoiding any credit event and selective default. And of course, default."

French official sources told Reuters they could support a private sector rollover of Greek debt but only if a voluntary formula could be found that would prevent wider damage to euro zone markets.

UNDER PRESSURE

Greek, Irish and Portuguese bonds all came under pressure after the Moody's warning, and the cost of insuring Greek sovereign debt against default rose.

Although Germany may struggle to win support for its debt swap proposal, the fact that euro zone officials are including a 30 billion euro contribution from the private sector in their assumptions about a new Greek bailout suggests some form of investor involvement is likely.

Several banks, including French heavyweight Credit Agricole, have expressed willingness to participate in recent days. Many of the German banks that hold Greek sovereign debt on their books are part-owned by the government, meaning Berlin would have significant influence over their stance.

German Chancellor Angela Merkel and Schaeuble briefed lawmakers on their Greek aid plans on Wednesday evening and received strong backing for the debt swap idea.

They are worried about a backlash from angry taxpayers and a possible rebellion in parliament if the banks that lent Greece money in better times remain untouched, as they did under the Greek, Irish and Portuguese bailouts sealed over the past year.

A group of German academics filed a legal challenge to the rescues a year ago, and Germany's top court is to hold a hearing on their suit on July 5.

Germany's drive to involve private creditors is supported by several of its euro zone partners, including the Netherlands and Finland.

But a euro zone source said the ECB had come out strongly against Schaeuble's proposal during a Wednesday conference call involving euro zone finance ministers and the central bank.

The central bank has warned that it would refuse to accept Greek debt as collateral in the event of a restructuring, a step that could further destabilize the Greek banking system.

CALL THE BLUFF

The source said, however, that it would ultimately be up to governments to decide how to proceed, and that it was possible other euro zone states could end up going along with the German plan, essentially calling the ECB's bluff.

"It could solve the problem if it was highly successful with a clear majority of the bond holders participating," the source said. "So this is very ambitious but also very risky."

Greece's debt burden stands close to 340 billion euros, or roughly 150 percent of its gross domestic product -- a level that many economists believe makes a substantial restructuring, involving so-called "haircuts" or forced bond losses, inevitable at some stage.

The softer options being considered by Europe would not reduce Greece's debt burden but would buy it more time to get its economy back in gear and restore confidence in its fiscal situation through privatizations.

EU leaders aim to agree on the new aid package for Greece at a June 23-24 summit in Brussels.

(Writing by Noah Barkin, editing by Andrew Torchia)

Wall Street fell for a sixth day on Wednesday after the Federal Reserve's Beige Book offered fresh evidence of an economic slowdown. It reinforced Fed chief Ben Bernanke's bearish assessment on growth on Tuesday.

The market's mood soured when Bernanke gave no hint that the central bank would offer a third round of stimulus to an economy losing steam.

"The global economy is not tumbling, it's just going through a turbulence zone. We think that things will get better in the second half of the year," said Vincent Treulet, head of investment strategy at BNP Paribas Investment Partners, which has 551 billion euros ($808 billion) in assets under management.

"The next earnings season will be key. It could be the positive catalyst the market needs." The MSCI world equity index .MIWD00000PUS was steady, having hit its lowest since March on Wednesday. The index has fallen 6.7 percent since hitting a three-year high in May.

The FTSEurofirst 300 index .FTEU3 rose 0.4 percent as recent losses attracted investors looking for a bargain.

Emerging stocks .MSCIEF lost 0.3 percent. Shanghai stocks .SSEC fell 1.7 percent to a 4-1/2 month low as concerns rose about further monetary policy tightening.

The euro rose 0.4 percent to $1.4640 ahead of the ECB meeting and President Jean-Claude Trichet's news conference.

The ECB is expected to use higher staff inflation forecasts to be published on Thursday to justify a case for a tightening in July, a move that would further raise the single currency's yield premium.

The euro has also remained unscathed by the euro zone's sovereign debt crisis. In a report obtained by Reuters on Wednesday, the EU, ECB and IMF mission to Greece said the next disbursement of Greek aid could not take place until it corrected the under-financing in its adjustment program.

Policymakers appeared to be edging closer to a compromise on how to structure a second aid package to Greece, but markets remained skeptical over the immediate impact of any solution involving private sector bondholders.

The dollar .DXY fell 0.3 percent against a basket of major currencies.

Bund futures fell 10 ticks to 124.77.

U.S. crude oil rose 0.8 percent to $101.58 a barrel while Brent crude gained 0.4 percent to $118.32 after Saudi Arabia failed to convince OPEC members to raise output targets and data showed U.S. crude stocks fell sharply last week.

(Additional reporting by Blaise Robinson; Editing by John Stonestreet)