UPDATE 3-Volvo Q1 loss worse than feared; industry data bleak

* Q1 operating loss worse than expected

* Cuts outlook for key heavy-duty truck markets in 2009

* Sees Europe market more than halved this year

* Volvo shares fall 5.5 percent

* March European new registrations down 33 percent -ACEA

(Adds analyst comment, share price, background)

By Niklas Pollard and Victoria Klesty

STOCKHOLM, April 24 (Reuters) - World number two truck maker Volvo (VOLVb.ST) posted a deeper-than-expected first-quarter operating loss on Friday and cut its market outlook, forecasting a huge contraction in demand on both sides of the Atlantic.

Volvo shares fell 5.5 percent to underperform a 0.4 percent fall in the broader market .OMXSPI and the news also weighed on stocks of rivals such as Germany's MAN (MANG.DE).

The weakness of Volvo's European home market, which it said it saw being cut in half or worse this year, was also in evidence as industry data showed separately that new commercial vehicle registrations fell 32.9 percent in March alone. [nLO329628]

The Swedish company reported a quarterly operating loss of 4.53 billion Swedish crowns ($536 million) versus a year-ago profit of 6.49 billion and the mean forecast for a loss of 2.90 billion seen in a Reuters poll of 18 analysts.

In a stunning reversal from years of robust demand, the global financial crisis and ensuing collapse in demand for heavy-duty trucks has left Volvo and its peers in the European truck industry struggling to slash capacity and costs.

The doldrums encountered by the heavy-duty truckmakers are only a shade less severe than those experienced by the auto industry where the likes of Chrysler LCC and General Motors (GM.N) are fighting for survival. [ID:nLN620342]

Many top-name auto brands are also looking for new homes, among them the cars business sold by Volvo to Ford (F.N) in 1999 as well as GM's Swedish carmaker Saab Automobile.

Volvo, which manufactures heavy-duty trucks under the Renault (RENA.PA), Mack, Nissan Diesel NSNDF.PK and Eicher (EICH.BO) brands, as well as its own name, said order bookings in the quarter fell 65 percent year-on-year with a fall of 71 percent in its key European market alone.

"The problem is that the order intake was weak, as were earnings, while the cash flow was catastrophically weak, which feels like the most urgent problem for them right now," said an analyst who asked not to be identified.

"And their guidance is extremely weak as well."

CUTS FORECAST

Volvo said in a statement it was scaling back its forecast of European heavy-duty truck demand this year, forecasting that the total market would "be at least halved". It had previously seen a decline of about 30-40 percent.

"The North American market is projected to decline 30-40 percent," it said. Its previous forecast was for the market there to be flat to down around 10 percent from already weak levels recorded in 2008.

Volvo is in the midst of cutting thousands of jobs to adjust to what Chief Executive Leif Johansson has described as the steepest decline in market demand ever experienced by an industry used to jarring cyclical swings.

Although car makers are benefitting from recently introduced government-backed scrappage schemes, truckmakers are falling victim to a dropoff in industrial activity pummelling demand.

"Although we are maintaining a high pace, it will take a few quarters before the actions taken will reduce costs by about 9 billion crowns annually," the company said.

The credit crunch has left truck buyers starved of money to fund the purchase of new vehicles while the recession across a wide swath of Volvo's main markets and gloomy outlook for the broader economy has further dampened customer appetite.

Sales at the group, which also manufactures buses, construction equipment, engines and aerospace components, fell to 56 billion crowns from a year-ago 77 billion. Analysts had seen sales of 54 billion in the period.

The strain of the economic downturn was also becoming visible in the group's customer financing unit which posted a loss in the quarter due to increased provisions for loan losses.

The company's cash flow was also pummelled by the downturn, coming in at a negative 15.7 billion crowns compared to a negative 3.3 billion in the year-earlier period, though the company said it had secured 30 billion of new funding.

"Their balance sheet seems to have collapsed with regard to payables, and the burn rate of cash was huge. But they seem to have good dry powder, and manoeuvrability in their finances," said an analyst who asked not to be identified.

"Let me put it this way: the market will not raise their target price on Volvo after this." ($1=8.457 Swedish Crown) (Additional reporting by Johannes Hellstrom; Editing by Mike Nesbit)