CHICAGO (Reuters) - Bermuda-domiciled Covidien Ltd. posted higher-than-expected quarterly earnings on Monday on strong sales of its medical devices, supplies and pharmaceuticals, but lowered its 2009 sales forecast due to the rising dollar.

The company said favourable foreign exchange rates boosted sales growth in the fourth quarter, but predicted the recent strengthening of the dollar would have a significant negative impact on sales going forward.

Shares of Covidien, a leading maker of health care products, fell as much as 5.4 percent in early trading on the New York Stock Exchange, but later recovered to close at $38.01. The stock reached a year-low of $35.35 last Thursday, down 38 percent from a peak of $57.00 in September.

"Given the recent sharp move down in the stock, we believe the market has largely priced in a reduction in the outlook," said Morgan Stanley analyst David Roman in a note to clients. He rates the stock "overweight".

The company's products range from laparoscopic surgical devices and hernia repairing mesh to drugs including generic OxyContin and compounds used in medical imaging.

The recent slowdown in capital spending by hospitals has had no material impact on sales, company officials said, noting that less than five percent of Covidien's products are considered capital purchases. Exposure to elective surgical procedures, which some patients are delaying due to deteriorating economic conditions, is relatively limited as well, the company said.

Covidien posted net profit of $409 million for the fiscal fourth quarter ended September 26, up from $34 million a year earlier.

Profit before special items was 73 cents per share, compared with 62 cents the year before.

Sales rose 12 percent to $2.6 billion.

Analysts on average were expecting earnings of 68 cents a share before special items on revenue of $2.54 billion, according to Reuters Estimates.

Medical device sales rose 10 percent to $1.7 billion in the fourth quarter, with medical products sales also up 10 percent, to $245 million.

Pharmaceutical sales climbed 37 percent due to the release of generic OxyContin extended-release tablets and TussiCaps cough medicine.

Sales in the imaging solutions division rose three percent to $300 million, less than projected due to price pressure on contrast solutions in the United States, the company said.

The company, which was spun off from Tyco International in mid-2007, said it expects sales in fiscal 2009 to be flat to up three percent due to the impact of the rapidly rising US dollar. In September Covidien had forecast a rise of five to eight percent for 2009 sales.

"Although reported results will most likely be negatively impacted by the recent strengthening of the US dollar, we have a strong pipeline of new products, fuelled by strategic investments in R&D, that will enhance our growth in the coming year and beyond," Covidien chairman and chief executive Richard Meelia said in a statement.

More than half of the company's operating income and three-quarters of its manufacturing production come from outside the United States.

Meelia said Covidien will continue to pursue acquisitions of new technologies that can help fill in gaps in its product line.