(Corrects percentage change range in ninth paragraph)
* End of Japan subsidies, yen to hit Toyota, Honda, Nissan
* Hyundai, Kia Q4 profits seen up on brisk sales
* Maruti Suzuki profit to fall on rising input prices
By Hyunjoo Jin and Chang-Ran Kim
SEOUL/TOKYO, Jan 25 (Reuters) - Japanese and Korean automakers are expected to post divergent quarterly results, with Hyundai Motor continuing its sales-led profit growth and Toyota, Nissan and Honda being pounded by a firmer yen.
In the year ahead, however, analysts are upbeat on the outlook for Japan's top three automakers, who will benefit from a recovering U.S. market, while they caution about tougher competition awaiting Hyundai in key markets, including South Korea.
Over the past few years, Hyundai has replaced Toyota Motor as arguably the most envied automaker with runaway sales gains driven by well-received new cars, industry-leading quality standings and a government supportive of its global expansion.
For the October-December quarter, South Korea's top automaker and affiliate Kia Motors are both expected to report steady profit gains as sales growth continued, with a heavier weighting in higher-margin cars such as the Sonata sedan.
In contrast, Toyota, Nissan Motor and Honda Motor will suffer the first consequences of the expiry of government subsidies to replace clunkers in Japan.
The resulting drop in their domestic production is exacerbating an already unprofitable export business hit by tough exchange rates and higher commodity prices, especially for Toyota, which exports half of the vehicles it builds in Japan.
The dollar averaged around 82 yen in Japanese automakers' third quarter, against 90 yen in the year-earlier period.
"The industry faces tough forex comparisons, a sharp correction in Japanese sales and higher material prices pushing down margins (from the previous quarter)," said Kurt Sanger, auto analyst at Deutsche Securities.
Analysts expect Japan's top three automakers to see their October-December operating profits decline by 17 to 61 percent, with the sharpest drop at Toyota.
BUILDING RESILIENCE TO YEN
Still, the outlook for Japan's top automakers is viewed as positive as they take steps to reduce their currency exposure, including by buying more auto components overseas with the strong yen.
They will also be the prime beneficiaries of a further recovery in the U.S. market, responsible for the bulk of their profits.
U.S. vehicle sales are expected to grow at least 10 percent this year led by retail demand where Toyota and Honda are well-positioned given their low exposure to fleet and truck buyers.
Toyota and Honda both also have popular car models -- the Camry and Civic -- undergoing a full remodelling this year in what analysts said could give Hyundai a run for its money.
"How Hyundai and Kia defend themselves against the challenges from US and Japanese rivals will be critical," said Park Sang-won, an analyst at Eugene Investment & Securities.
Japanese automakers are also devising ways to manufacture cars more efficiently and cheaply at home to build a natural hedge against currency swings.
"We expect the durability of margins (in the latest quarter) to surprise on the upside, setting a more optimistic tone for profit potential in 2011/12," Deutsche's Sanger said.
HYUNDAI TO PUMP BRAKES
Hyundai though will likely face a tougher race against imports in its home market, responsible for the biggest portion of its revenues. South Korea's free trade deal with the European Union taking effect in July will especially favour European cars as tariffs are phased out.
Hyundai's stretched production capacity could also be a drag on sales, forcing earnings growth to slow this year, analysts said.
"Hyundai should raise its average pricing to offset the slowing sales volume, and the key challenge will be how to persuade customers to accept the higher prices," said Park of Eugene Investment.
The removal of subsidies on smaller cars in China and tighter rules on new car registrations in Beijing could also hit Hyundai harder than many due to its higher ratio of compact cars and vehicles sold in China's capital city.
INDIAN SLOWDOWN A WORRY FOR MARUTI
Slowing growth also in India will pressure the country's top automakers such as Maruti Suzuki India , which is grappling with higher commodity costs and royalty payments to Japanese parent Suzuki Motor Corp .
Despite a rise in revenues, analysts expect Maruti to report a 13 percent drop in third-quarter earnings, while Tata Motors is seen more than tripling its quarterly profit mainly due to the improving performance at its Jaguar Land Rover unit.
Rising input costs, mainly of steel and rubber, have forced Maruti, Tata and others to raise car prices this month, but stepped-up competition and a possible contraction in demand could limit that ability going forward, said Vaishali Jajoo, auto analyst at Angel Broking.
"Right now they are able to pass (the higher costs) on because there is no severe contraction in demand," she said, adding that could change in three or four months' time.
Jajoo added that with global car makers such as Toyota boosting capacity in India to launch new products, margins will stay under pressure if automakers cannot get better pricing.
Car sales in India grew 31 percent to a record in 2010 but the pace of growth is expected to slow this year, with rising fuel and vehicle costs and a hike in interest rates seen weighing on demand. (Additional reporting by Devidutta Tripathy in NEW DELHI; Editing by Muralikumar Anantharaman)