UPDATE 1-Great Atlantic posts weak Q2, CEO resigns; shares sink

* Q2 comp sales fall 3.8 pct

* Q3 loss 1.18 vs est 71 cents

* Terms leadership change "warranted and appropriate"

* Shares fall as much as 20 pct (Adds conference call, analyst comments, updates stock movement)

By Vidya Lakshmi

BANGALORE, Oct 20 (Reuters) - Great Atlantic & Pacific Tea Co Inc GAP.N posted a wider-than-expected quarterly loss, hurt by pricing pressure, and said its Chief Executive Eric Claus resigned effective immediately, sending its shares down as much as 20 percent.

The supermarket chain said it began search for a replacement for Claus, who has served as CEO since August 2005, and named Christian Haub, executive chairman and former CEO, as interim chief executive.

"The company's performance has not met our expectations. Based on these results the company felt a change in leadership was warranted and appropriate," Haub said on a conference call with analysts.

The company is battling deflation, and has definitely lost market share over the past year to competition. They are now trying to work to get it back, said analyst Mario Barraza at brokerage Kevin Dann and Partners.

Great Atlantic has been posting losses for the past two years and has been hurt by higher operating costs and pension-related costs.

Price impact continues to be a challenge and the company does not expect to see improvement in the short term, Chief Financial Officer Brenda Galgano said.

Great Atlantic posted a same-store sales decline of 3.8 percent.

"When you have a minus 4 percent comp you are not going to get the leverage you need on your costs," analyst Dann said.

He said lower same-store sales would be a reason driving shares down and added that the CEO change was a positive thing.

Great Atlantic operates 432 stores under names including A&P, Waldbaum's, Pathmark, Pathmark Sav-a-Center, Best Cellars, The Food Emporium, Super Foodmart, Super Fresh and Food Basics.

MOUNTING LOSSES

The company posted a second-quarter net loss of $80.3 million, or $1.18 per share, compared with a loss of $18.1 million, or 9 cents a share, a year ago.

Analysts on average had expected a loss of 71 cents a share, on revenue of $2.12 billion, according to Thomson Reuters I/B/E/S.

The latest quarterly results include a $50 million increase in non-cash mark-to-market adjustments related to financial liabilities.

The charge had to do with pension and 'dark-store' liabilities, analyst Barraza said.

"These are the stores they have closed but they still have a lease on; they are responsible for the lease," he said.

Revenue fell to $2.07 billion from $2.18 billion.

Standard & Poor's Equity Research cut its rating on the company's shares to "sell" from "hold."

Shares of the Montvale, New Jersey-based company closed 14 percent at $9.78 Tuesday on the New York Stock Exchange. They touched a low of $9.15 in intraday trading. (Reporting by Vidya Lakshmi; Editing by Anne Pallivathuckal and Gopakumar Warrier)