* Loss $0.68/shr vs year-ago EPS $0.35
* Hit by weaker prices, falling retail demand
* Market has improved during first quarter (In U.S. dollars, unless noted)
TORONTO, June 4 (Reuters) - Harry Winston Diamond Corp HW.TO fell to a loss in the first quarter due to plunging diamond demand and a series of one-time items, but the company said on Thursday the worst of the slump was past and prices were already on the rise.
Speaking on a conference call, Chief Executive Robert Gannicott said rough diamond prices have begun to rebound due to global cuts to diamond production and positive demand from Asia, while retail traffic at its high-end jewelry stores has begun to improve after drying up last year.
"(Last year) was a terrible year," said Gannicott.
"This quarter ... we can actually see the beginnings of recovery."
He said Harry Winston, which in addition to the retail chain owns about 30 percent of Rio Tinto's (RIO.L) Diavik diamond mine in Canada's Arctic, was hit last year by a triple-whammy of weak demand, soaring capital costs at Diavik, and lower than expected mined grades.
On the capital cost side, for instance, the company suffered equipment shortfalls, including large dump trucks that were delivered without tires due to tire shortages.
The tough conditions prompted mine operator Rio to defer construction of the underground portion of Diavik and to shut down the mine for six week periods this summer and winter.
The summer shutdown will take place from July 14 to August 24, but Gannicott said he believed the winter shutdown, which is scheduled from Dec. 1 to Jan. 11, might be canceled due to the improving market.
"I personally think the second one is unlikely to occur, but there's been no real decision on that yet," he said.
However, the company cautioned in a statement that the global retail environment remains very difficult.
FALLS TO LOSS
For the three months ended April 30, Harry Winston lost $45.1 million, or 68 cents a share, compared with a year-earlier profit of $21.3 million, or 35 cents a share.
The loss was exacerbated by a $34.2 million noncash dilution loss from Kinross Gold's (K.TO) purchase of a direct 9 percent stake in the Diavik mine from Harry Winston. Kinross also bought a 20 percent stake in the company.
Stripping out the dilution loss, as well as a net foreign exchange loss and an after-tax gain on an insurance settlement, Harry Winston lost 10 cents a share, it said.
Quarterly sales fell almost 30 percent to $109.6 million, declining 29 percent on the mining side and about 30 percent in the retail business.
In a research note, RBC analyst Irene Nattel said the results missed her estimate for a net loss of 52 cents a share, while revenue from both the mining and retail segments also were weaker than expected.
The company's shares, which have more than tripled after hitting a 20-year low in mid-March, were up 4 Canadian cents at C$7.31 on the Toronto Stock Exchange.
($1=$1.10 Canadian) (Additional reporting by Euan Rocha; editing by Rob Wilson)