* Net income at Gerdau, Usiminas beats estimates
* Usiminas to focus new strategy on iron ore
* Shares of Gerdau, Usiminas rally (Recasts to add share impact in first paragraph, comments)
By Guillermo Parra-Bernal
SAO PAULO, Feb 25 (Reuters) - Cost discipline and rising demand at home helped Brazil's two largest steelmakers beat fourth-quarter profit estimates on Thursday, sending their shares up for the first time in almost a week.
Gerdau (GGBR4.SA) and Usiminas (USIM5.SA) said the stronger Brazilian currency trimmed debt servicing, while a better mixture of product sales and efforts to trim expenses helped them weather the industry's worst crisis in decades.
Throughout 2009, steelmakers around the world grappled with a sharp decline in demand in the recession-hit automobile, construction and home appliance industries. Domestic demand is driving the rebound thanks to massive infrastructure plans.
"The general view that we have is that the business is gradually improving, yet in an uneven way, depending on the region," Gerdau Chief Executive Andre Gerdau Johannpeter told reporters on a conference call.
Gerdau, Latin America's largest steelmaker, and Usiminas, Brazil's No. 1 maker of flat steel, are pinning hopes for growth on massive infrastructure spending at home, but warned that a lengthier global recession, cheaper steel imports and increased currency volatility could prolong their pain.
Preferred shares of Usiminas (USIM5.SA) rallied 3.1 percent to 48.75 reais -- their biggest jump in a week.
Preferred shares of Gerdau rose 2.3 percent to 25.68 reais. Shares of steel unit Metalurgica Gerdau jumped 2.5 percent to 32.23 reais.
Steel stocks were among the only gainers in Sao Paulo on Thursday as the Bovespa index .BVSPshed 0.8 percent.
Usiminas had a 32 percent drop in quarterly profit, better than the 62 percent tumble that seven analysts had forecast in a Reuters poll, to 633 million reais ($347 million).
"Industry as a whole is adapting to a new level of demand," Usiminas Chief Executive Marco Antonio Castello Branco told analysts at a conference call.
Net income at Gerdau (GGBR4.SA)(GGBR3.SA) more than doubled in the fourth quarter to 643 million reais thanks to lower debt servicing and a more favorable sales mix. Profit had been forecast to jump 71 percent by seven analysts in a Reuters poll.
The company's specialty steel unit boosted output for a second quarter, offsetting weak production in North America.
Five analysts on average estimate profit at CSN (CSNA3.SA), Brazil's largest diversified steel group, at 635 million reais, down 84 percent from a year earlier. The company is scheduled to release data after markets close on Thursday.
With the worst of the crisis over, Usiminas is considering spinning off its iron ore unit to benefit from a tight market for the metal in the next few years. [ID:nN25160186]
Usiminas' mining business accounted for about 14 percent of the company's operating cash flow and posted margins above 50 percent, making it one possible source for growth in coming years.
"In our view investors are pricing only the current iron ore production and not any growth potential," said a Goldman Sachs report released after the results.
Last year, CSN unveiled plans to list its iron ore unit, which is valued at $12 billion by some analysts and has become its fastest-growing business unit.
Gerdau's Johannpeter said the Brazilian government's $344 billion infrastructure plan, known as the PAC, is feeding growth for steelmakers.
Yet both companies ruled out price hikes and kept capital expenditure plans unchanged, despite an expected jump in demand as Brazil prepares to host the 2014 World Cup and the 2016 Olympics.
Recent volatility in the real BRBY, Brazil's currency, could hurt export revenue and distort the value of overseas operations, especially for Gerdau, analysts said.
A stronger real could also boost imports of cheap steel from China, which could hamper local sales for Gerdau and Usiminas.
"We remain cautious on domestic flat-steel prices, which should face pressures from rising imports especially given (the real's) strength," wrote Rodolfo de Angele of JPMorgan Chase.
$=1.835 reais Additional reporting by Alberto Alerigi Jr. in Sao Paulo, editing by Stuart Grudgings and Dave Zimmerman