Prudential's Keon sees double-digit profit gains

NEW YORK (Reuters) - Despite increasing signs the economy is headed for slower growth, corporate earnings should see double-digit growth in the second quarter and in the second half of the year, Ed Keon, chief investment strategist at Prudential Equity Group, said on Monday.

He told the Reuters Investment Outlook Summit in New York that earnings growth could be what propels the stock market higher from its recent rut, with the Dow Jones industrial average .DJI last week breaking below 11,000 for the first time in three months.

Reuters Estimates is forecasting second-quarter earnings growth for S&P 500 companies of 7.2 percent and 2006 profit growth of 11.3 percent.

"The first quarter turned out to be close to 15 (percent), and it looks as though the second quarter might keep us in double digits," Keon told the summit. "In the second half of the year, despite the fact that we expect an economic slowdown, I still expect we might well see double-digit earnings."

He said the Federal Reserve's concerns about inflation bode well for stocks.

"What matters is we want them to take the necessary steps to keep the economy from going into recession or much higher inflation," Keon said.

"Recessions always come as a surprise, but it does not look to be looming," he said.

The market has had about four years of double-digit earnings increases, with the energy sector showing the biggest year-over-year profit gains in recent quarters as oil prices have risen.