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UPDATE 2-Caterpillar smashes profit estimates, raises 2017 forecast again

(Adds details, updates shares)

July 25 (Reuters) - Caterpillar Inc smashed Wall Street's profit estimates and raised its full-year forecast for the second time, driven by improving demand in China and a recovery in mining activity.

Shares of the world's largest construction and mining equipment maker rose 5.6 percent in premarket trading on Tuesday.

Caterpillar's strong results underscore a turnaround in its main businesses that have been hit by low commodity prices and slowing demand in the past few years.

"While a number of our end markets remain challenged, construction in China and gas compression in North America were highlights in the quarter," Chief Executive Jim Umpleby said in a statement.

"Mining and oil-related activities have come off of recent lows, and we are seeing improving demand for construction in most regions."

Total sales rose 9.6 percent to $11.33 billion and handily beat analysts' average estimate of $10.93 billion, according to Thomson Reuters I/B/E/S.

Sales from Asia Pacific, Caterpillar's third-biggest market, jumped 23 percent in the quarter, boosted by an increase in construction equipment sales in China.

Demand for construction equipment in China is gaining momentum after bottoming out last year, driven by a Beijing-backed infrastructure push, a housing boom and increased investment linked to China's modern-day "Silk Road".

Sales in North America, its biggest market, were up 7 percent, largely due to improving demand from the mining and energy industries.

U.S. industrial companies are expected to gain from President Donald Trump's pro-business proposals on infrastructure spending and tax reforms, but a political gridlock in Washington has stalled those plans.

The resource industries business, which makes mining equipment, reported the biggest jump in sales in the quarter compared with a year earlier, led by Asia Pacific.

Caterpillar said it now expects 2017 adjusted earnings of about $5 per share, up from the $3.75 it had previously forecast.

The company lifted its full-year sales and revenue forecast to a range of $42 billion to $44 billion, from its previous forecast of $38 billion to $41 billion.

Net income rose about 46 percent to $802 million. Excluding items, Caterpillar earned $1.49 per share, handsomely beating the average estimate of $1.26 per share.

Caterpillar's shares were up 5 percent at $113.48 in premarket trading. Up to Monday's close the stock had gained 16.6 percent this year, outperforming the Dow's 9 percent rise. (Reporting by Rachit Vats and Sweta Singh in Bengaluru; Editing by Saumyadeb Chakrabarty)