Updated from 8:27 a.m. EST

General Motors ( GM) squeezed nearly a dime of earnings upside out of its fourth quarter, but the steady drumbeat of selling continued in its stock.

After falling more than 8% since the New Year, GM's shares were recently down another 15 cents to $36.62. That's a reversal from the stock's action following its earnings release, when it climbed nearly 2%.

The company said it earned $630 million, or $1.11 a share, in the three months ended Dec. 31, down 37% from $1.0 billion, or $2.13 a share, a year ago. Soaring health care costs weighed on the automaker's North American operations, and a huge decline in European operations sandbagged overall results.

The automaker reported several one-time items in the fourth quarter, which resulted in a favorable effect of 10 cents a share, or $61 million. On the downside, it took hits from charges related to its decision to write off its investment in Fiat Auto SpA and others related to two plant closings in the U.S. announced in 2003. However, these items were more than offset by a gain on GM's stake in XM Satellite Radio ( XMSR).

After adjustments, the company earned $569 million, or $1.01 a share, in the most recent quarter. Adjusted revenue rose 4.7% from a year ago to $51.2 billion. Analysts surveyed by Thomson First Call had been expecting adjusted earnings of 91 cents a share in the 2004 quarter.

GM continued its tradition of deriving the lion's share of its earnings from lending -- primarily home loans -- in the fourth quarter. Its GMAC finance unit earned $611 million in the period, down from $630 million last year, while its worldwide automotive unit posted a profit of $235 million in the quarter, down from $396 million last year.

GM shares took a hit last week when the company said it might spin off the mortgage operations of GMAC into a separate holding company that would enjoy its own credit rating. Investors construed the plan as evidence the company is conceding the real possibility of a downgrade.

On a conference call with analysts Wednesday, GM's chief financial officer, John Devine, acknowledged concerns about the company's credit rating.

"It hurts," Devine said. "It's not something that we'd like to see happen, and we're doing everything we can to avoid it. That said, it's not our call."

Currently, the nation's three major credit rating firms -- Standard & Poor's, Fitch and Moody's -- rate GM just above junk status, with its roughly $301 billion of debt.

Last week, S&P affirmed its credit rating on GM, but said it would review the "appropriateness" of its stable outlook in coming months. Any change in the outlook would be seen as a warning to debt markets that one of the largest issuers of corporate debt is headed for junk status.

If a downgrade should materialize, GM would likely move to shelter its mortgage operations from the rest of the company, which suffers from oppressive health care and pension costs, a precarious competitive position and rising commodity costs. The company accentuated the results of its financial operations in its press release.

"GMAC has done a terrific job transforming itself from an auto-finance unit into a broad-based financial-services company that is focused on producing sustainable, long-term earnings," GM said. "In addition, GMAC has diversified its sources of funding to strengthen its balance sheet in the face of a higher-interest-rate environment.

"Going forward, we expect GMAC to continue to be a significant source of income for GM, and an important partner in our drive to grow sales volumes around the world."

Among its auto operations, GM's North American division earned $416 million in the fourth quarter, up from $397 million last year. Its market share in the region declined to 26.7%, down from last tear's 27.4%. Cost reductions and favorable tax settlements were partially offset by lower production volumes and an unfavorable product mix.

"While we fell short of our goal to gain market share in North America in 2004, we had a solid finish to the year," GM said. "Sales volumes for our newest vehicles gained momentum throughout the year and we continued to make progress in the key areas of productivity, quality and cost reduction."

Its global market share dipped to 14.5 percent in 2004, down slightly from 14.6 percent in 2003.

The company's European operations lost $345 million in the fourth quarter of 2004, compared with a loss of $66 million last year. The division is in the process of a massive cost-removal campaign that was announced in December.

GM reiterated an earnings outlook from last Thursday, saying it sees 2005 earnings of $4 to $5 a share, excluding special items, with "breakeven or better" results in the first quarter. That would mark a decline from its 2004 earnings of $6.51 a share. Wall Street analysts are expecting earnings of $4.39 a share in 2005, followed by an increase in 2006 to $5.57 a share.

"GM expects solid, worldwide economic growth in 2005 with global industry sales surpassing 62 million units. GM expects North American industry sales of approximately 20 million units, about flat with 2004 results. Industry sales in Europe are expected to total approximately 20 million units, on par with 2004," it said.

The automaker's pension fund earned a return of 14% in 2004, well above the 9% target it gave in 2003 when it issued $13 billion in debt to fund its pension gap.

Devine also told analysts that he does not expect GM to have to use cash to fund its pension obligations for the remainder of this decade.

"We can't count on the 14% return every year," he said. "We want to make sure that we have some buffer there, so we don't have to go back to the well when the market goes down. We're comfortable with where we are."

He also said he expects the health care situation to improve going forward.

"We expect some moderation in the increase in health care costs in the future," Devine said. "However, these costs are not under our control. It's very frustrating."