UPDATE 2-GM sees European operations breaking even mid-decade

* GM expects much bigger loss in Europe this year

* Still sees Europe economy flat to slightly deteriorating

* Expects flat to slightly higher overall fourth-quarter operating profit

* Shares up 5.2 percent

DETROIT, Oct 31 (Reuters) - General Motors Co posted a surprisingly strong profit on Wednesday and said it was targeting a return to break-even levels in its European operations by mid-decade after a loss of as much as $1.8 billion in that region this year.

Shares of the automaker rose more than 5 percent in early trading.

``We still have a lot of work to do, especially in Europe,'' GM Chief Financial Officer Dan Ammann said in a statement.

GM's third-quarter net income attributable to common shareholders fell to $1.48 billion, or 89 cents a share, from $1.74 billion, or $1.03 a share, a year earlier. On Tuesday, smaller U.S. rival Ford Motor Co reported a far higher-than-expected profit of $1.63 billion for the quarter.

Excluding one-time items, GM earned 93 cents a share, well above the analysts' average estimate of 60 cents, according to Thomson Reuters I/B/E/S. Earnings in the company's regions outside of Europe came in above expectations.

Revenue rose to $37.6 billion from $36.7 billion. Analysts had expected $35.7 billion.

GM said it expected a full-year operating loss of $1.5 billion to $1.8 billion in Europe, depending on the level of restructuring in the fourth quarter. Last year, it lost $747 million in the region.

The company, which sells in Europe largely under the Opel brand name, said it was targeting results there to be slightly better in 2013 than in 2012 and to reach break-even by mid-decade.

GM still sees the European economy as flat to slightly deteriorating. ``We're not banking on a sharp turnaround ... at this point,'' Ammann told reporters on a conference call.

Opel has been a drag on GM's results, leading the automaker to push for changes at the European unit, which has lost a total of $16 billion over the past dozen years despite repeated rounds of job cuts. In the third quarter, GM Europe posted an operating loss of $478 million, in line with what analysts had expected.

GM said Vice Chairman Steve Girsky, who is leading the restructuring of Opel, will provide more details of the turnaround efforts there on a conference call with analysts later on Wednesday.

Ford has had similar struggles in Europe. The No. 2 U.S. automaker said last week that it would close three plants in the region to cut costs by as much as $500 million and signaled a willingness to do more.

Ford has said it expects to lose at least $3 billion in Europe over the next two years, including at least $1.5 billion this year. It expects to post a smaller loss in the region in 2014 before being profitable by mid-decade.

For the fourth quarter, GM said it expected overall operating earnings similar to or slightly better than those of a year earlier.

This quarter could benefit from a reversal of a significant portion of a tax reserve, known as a valuation allowance, on U.S. and Canadian deferred tax assets, GM said. At the end of September, those cumulative allowances totaled almost $39 billion combined, and eliminating some of that would reflect confidence in the company's financial prospects.

GM's North American unit posted an operating profit of $1.82 billion as higher volumes and selling prices contributed $600 million to the quarter. Analysts had expected $1.4 billion to $1.6 billion.

In the International unit, which includes China but not Europe, the operating profit was $689 million, stronger than the $500 million that several analysts had expected. The results benefited from higher vehicle production rates and a $600 million increase in revenue from consolidated operations in South Korea and Australia.

The South American unit's $114 million profit was better than the loss to small gain that analysts had expected.

Shares of GM were up 5.2 percent at $24.50 on the New York Stock Exchange.