Toyota Motor, whose small, fuel-efficient vehicles are reaping the benefits of soaring gas prices, raised its 2008 forecast to 9.85 million in vehicle sales, despite fears of a slowdown in its key U.S. market.

Toyota’s forecasts could put it ahead of General Motors, the world’s largest automaker by vehicle sales. General Motors hasn’t given a forecast for next year, but estimated 9.2 million in vehicle sales in 2007. In 1978, the U.S. automaker created an unbeaten record when it sold 9.55 million units.

As demand slows down in the U.S. and European markets, global automakers are counting on markets like India, China and Russia, where rising incomes are leading to high growth rates. Toyota Motor opened a factory in St. Petersburg last week and estimates a 25% rise in Russia sales next year.

Toyota, the maker of models like the Camry and Prius hybrids, estimated 2.27 million in vehicle sales in its home market of Japan and 7.58 million in overseas sales for the next year. In Asia excluding Japan, the company is looking at a 20% increase in sales, compared with a 1% rise in the United States.

“At the beginning of the year, we wondered if the total auto market would reach 8 million, and by mid-year we were looking at 8.5 million. Now it’s possible the market will exceed 9 million. We need to figure out how to meet demand,” President Katsuaki Watanabe told media in Nagoya, Japan.

Last month, Toyota reported an 11% increase in profits for its second quarter. For 2008, the company is budgeting for global production of 9.95 million units, up 5% from this year’s level.

“We think these are achievable numbers and take a positive stance on them,” Citigroup said in a research note. “Toyota’s range abounds in fuel-efficient vehicles and it was also ahead of the pack in commercializing mass-produced hybrids. It is also boosting diesel engines in alliance with Isuzu Motors. We like the way it is set to play to its strengths in expanding earnings by bringing to mass production vehicles with superior gas mileage in 2008 and beyond,” said analyst Noriyuki Matsushima.

For the first nine months of this year, Toyota sold 7.05 million vehicles sold worldwide, barely trailing General Motors’ tally of 7.06 million. The final numbers for the year will be out in January.

Goldman Sachs said in an analyst note that while the company’s U.S. and Japan targets were ambitious for next year, overall sales could come in at more than 10 million vehicles.

Toyota’s shares rose 1.3% on the Tokyo Stock Exchange Wednesday, closing at 6,180 yen ($54.14). Later in New York, its American depositary receipts, which represent two Japanese shares, gained 1.5%, or $1.62, to $108.56, equivalent to 6,197 yen in Tokyo.