But, profits from Dow's performance plastics and performance chemicals business fell, pressured by weak North American housing and automotive markets, coupled with the impact of high raw material costs that could not immediately be passed to customers.
U.S. home-builder sentiment in July reached its lowest mark since 1991, and building permits in June fell to their lowest rate in 10 years. Simultaneously, U.S. automakers are grappling with a loss in domestic market share to Japanese rivals.
However, earnings before interest and taxes from Dow's AgroSciences business grew almost 30%, driven by demand in Brazil and increased sales of healthier cooking oils.
Feedstock and energy costs surged $550 million from a year-ago and almost $700 million from the first quarter -- the highest ever sequential increase, the company said.
Crude oil and natural gas are key raw materials that Dow uses to manufacture many of its plastics and chemicals.
Expenditures for hydrocarbon feedstocks and energy accounted for 49% of Dow's production costs and operating expenses in 2006.
Dow is fighting surging energy costs through 'asset light' joint ventures in places like the Middle East and North Africa countries that have access to cheaper raw materials.
It recently formed a joint venture with the National Oil of Libya to operate and expand the Ras Lanuf petrochemical complex. It also announced a joint venture with Saudi Aramco to build a petrochemical plant at Ras Tanura.
Last week, Dow Chemical announced a joint venture with Brazilian ethanol maker Crystalsev to make polyethylene -- a plastic widely used in packaging, films and bottles -- from sugar cane.
Besides the recently announced joint ventures, Dow already has a number of joint ventures already in operation like Dow Corning, MEGlobal and Equate.
These operations played a key role in earnings growth during the quarter, equity earnings from joint ventures rose 11% to $258 million, the company said.
"All said, the star performer in the quarter, yet again, was the equity affiliates," said HSBC's Ahmed.
The company anticipates solid demand through the third quarter, but expects its agricultural sciences segment to experience a typical seasonal decline.
"We expect global GDP to remain healthy, as the U.S. economy stabilizes and growth around the world continues to be strong," Dow Chief Executive Andrew Liveris said in a statement.
"Feedstock and energy costs are expected to remain relatively high and volatile through this quarter," Liveris added.
In an interview, Liveris said he does not expect any improvement in the North American housing market until the end of next year.
Until Thursday's decline, Dow shares had risen 2.4% over the last three months through Wednesday's market close, underperforming a 7.5% gain for the Standard & Poor's Chemicals Index.