UPDATE 2 - Paintmaker PPG's profit down, but tops forecasts

* Adjusted EPS 91 cts beats Wall St forecast of 74 cts

* Q2 sales fall 30 percent to $3.1 bln

* Shares up 4 percent

(Adds CEO comments, outlook, stock opens up)

NEW YORK, July 16 (Reuters) - PPG Industries Inc (PPG.N), the world's second-largest paint and coatings maker, on Thursday posted better-than-expected second-quarter profit, sending its shares higher.

Chairman and Chief Executive Officer Charles Bunch said despite a 30-percent drop in sales in the quarter, there were signs that markets have stabilized and demand will improve in the third quarter.

"Clearly, we are continuing to experience very challenging conditions in many of our end-use markets," he said in a statement, adding that most markets have stabilized, albeit at considerably lower levels than prior years.

"Looking ahead to the third quarter, we expect overall market demand to improve, but only mildly," Bunch said. "We expect sequential improvement in the U.S. automotive OEM market, but we expect the opposite for commodity chemicals."

Pittsburgh-based PPG said net earnings were $146 million, or 89 cents per share, down some 40 percent from $250 million, or $1.51 per share in the same quarter of 2008.

But adjusted net income was $148 million, or 91 cents per share, topping analyst expectations of 74 cents per share, according to Reuters Estimates.

The adjusted earnings excluded an after-tax charge of $2 million, or 2 cents per share, to reflect an increase in the current value of the company's obligation under its proposed asbestos settlement.

Revenue dropped to $3.1 billion from $4.5 billion and PPG said that included a $253-million impact from the divestiture of a majority interest in an automotive glass and services business.

Shares in PPG, which were up about 8 percent so far this year through Wednesday's close, rose 4.4 percent to $48.11 when the New York Stock Exchange opened on Thursday.

(Reporting by Steve James, editing by Matt Daily)