UPDATE 2-Sandvik swings to surprise Q1 loss as orders slump

* Says Q1 order intake down 29 percent year-on-year

* Prioritising cash flow, inventory cuts

* Shares sink 13 percent

(Adds analyst comment, detail, updates share)

By Niklas Pollard and Johannes Hellstrom

STOCKHOLM, April 28 (Reuters) - Swedish tool and machinery maker Sandvik (SAND.ST) swung to a surprise first-quarter loss as its order intake fell more steeply than expected, sending its shares sharply lower.

Sandvik posted a pretax loss of 429 million Swedish crowns ($52 million) from a profit of 2.72 billion a year ago, well below the mean forecast for earnings of 291 million from a Reuters poll of 18 analysts.

Sales also missed forecasts, falling to 19.1 billion crowns from 22.0 billion and below the 20.7 billion seen by analysts as the company scaled back output to reduce a build-up of stocks.

"The decline in earnings should be viewed in the light of Sandvik's strategic decision to prioritise cash flow and inventory control during the current market conditions," it said in a statement.

Shares in Sandvik were down 13 percent by 1132 GMT, underperforming a 4 percent decline in the Stockholm bourse's blue chip index .OMXS30.

"The report is a clearly weaker than expected," Evli analyst Magnus Axen said.

"Demand was ... even worse than (for) all the other (engineering) firms, and I think that is troubling."

EARNINGS PLUNGE

In a sharp reversal of fortune, Sandvik and its peers in the Swedish engineering sector have seen the demand that for years propelled them to record earnings plunge in the space of a few months under the weight of the global economic downturn.

New orders at the manufacturer of metalworking tools, mining equipment and specialty steels fell to 17.8 billion crowns from 25.1 billion, lagging the analyst poll's mean forecast of 20.8 billion.

The fall in order intake was even steeper when measured at fixed exchange rates, which stripped out the impact of a sharp fall in the Swedish crown EURSEK=, landing at a 39 percent decline for comparable units.

"The exceptionally weak market position that prevailed at the end of 2008 continued during the first quarter of 2009," the company said in the report.

"The weak demand means that we continue to take measures that gradually result in lower cost levels."

Sandvik said it had reduced inventories by producing at a lower rate than warranted by invoicing.

"There was a marked decline in demand for Sandvik's products compared with the corresponding period in the preceding year, and also when compared with the average for the fourth quarter of 2008," it said. Order cancellations amounted to 900 million crowns in the period it added.

(Reporting by Niklas Pollard and Johannes Hellstrom; editing by John Stonestreet)