E.ON said on Tuesday it now expected earnings before interest, tax, depreciation and amortization (EBITDA) of 10.4-11.0 billion euros ($13.1-13.8 billion), compared with a previous target corridor of 9.6-10.2 billion.

Underlying net income for the year is expected to reach 4.1-4.5 billion euros, up from a previous forecast of 2.3-2.7 billion.

"The deal with Gazprom is good news and helps to solve a big problem for the company," a Frankfurt-based trader said.

Shares in E.ON turned positive on the news and were up 2.6 percent by 05:57 a.m. EDT (0957 GMT), helping to lift the Stoxx Europe 600 utilities index .SX6P up 0.7 percent.

E.ON said the deal - including a retroactive adaptation of pricing conditions for the price review period since the fourth quarter of 2010 - was expected to have a positive 1 billion euro impact on the group's half-year results, due August 13.

E.ON's Ruhrgas unit, Germany's gas market leader and now part of a bigger gas and trading division, had been talking to Gazprom since late 2010 about adjusting gas prices as prices it paid to its Russian supplier stayed well above those in its local market.

Losses from its exposure to Gazprom cost it 1 billion euros since October 2010, it said recently.

The losses were due to high oil prices, to which gas is index-linked in many European contracts, at a time when consumers have refused to pay high prices after cheap spot gas sprung up at trading hubs in Europe, pulling local prices down.

E.ON had renegotiated most of its long-term gas contracts, for instance with Norwegian supplier Statoil (STL.OL), before the deal with Gazprom.

($1 = 0.7947 euros)

(Reporting by Christoph Steitz and Vera Eckert; Additional reporting by Daniela Pegna; Editing by Mark Potter)

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