DETROIT (Reuters) - Ford Motor Co posted a higher-than-expected quarterly profit yesterday and announced additional debt reduction to cut borrowing costs and bring the automaker closer to an investment-grade credit rating.

Ford, which expects to be solidly profitable this year, said it repaid $2 billion of debt in the third quarter, expects to pay off a debt to a union retiree healthcare trust fund on Friday, and has launched a convertible note offering to reduce its debt.

Third-quarter net profit rose to $1.7 billion, or 43 cents per share, from $997 million, or 29 cents per share, a year earlier.

Ford shares, which touched a six-month high on Monday, were up one percent in lunchtime trading after the release of the earnings results and debt-reduction plans.

The automaker said it now expects cash on hand in its automotive business to at least match its debt by the end of 2010 — a year ahead of a forecast it gave in July.

Ford, which posted losses totaling $30 billion from 2006 through 2008, borrowed $23.5 billion in late 2006 to support its turnaround, leaving it with much heavier debt loads than rivals General Motors Coand Chrysler.

Dearborn, Michigan-based Ford last had an investment-grade credit rating in May 2005. Ratings agencies have raised Ford in recent months with its reporting of continued profits, and now have it overall two notches below investment grade.

Morningstar analyst David Whiston said Ford's debt reduction, elimination of non-profitable brands such as Volvo and Jaguar to concentrate on its mass-market Ford brand, and higher-quality vehicles have made a difference in results.

"They are making better vehicles that people want to pay up for, even in the small-car segment," Whiston said.

Ford introduced a Fiesta subcompact to the US market earlier this year and plans to begin broad sales of a redesigned Focus compact car in early 2011 in a major upgrade of its line-up with smaller, more well-equipped cars than in the past.

Ford completed the sale of Volvo to China's Geely in August and has announced plans to phase out the Mercury brand, leaving it with additional resources to focus on the restoration of its Lincoln luxury brand.

The introduction of vehicles such as the redesigned Taurus and the Fiesta have allowed Ford to increase its average transaction price significantly, contributing to profits and helping it increase its US market share.

Ford's profits will continue to rise as long as it "continues to have the right products," said Van Conway, an automotive analyst at Conway MacKenzie.

Excluding the Volvo unit, revenue rose $1.7 billion to $29 billion.

Ford reported earnings of 48 cents per share excluding one-time items. On that basis, analysts on average expected 38 cents, according to Thomson Reuters.

Ford has posted net profits for six consecutive quarters. The $1.7 billion net profit was its strongest result for a third quarter since at least the 1980s, the automaker said.