UPDATE 2-Praxair profit drops 8 percent, beats Street

* Ex. items, Q3 EPS $1.02 vs. Street view $1.00

* Revenue falls 20 percent

* Sees Q4 shr $1.05-1.10 vs Street view $1.07

* Sees FY adj shr $3.96-4.01 vs Street view $3.96-4.01

* Sees FY rev about $9 bln vs Street View $8.895 bln

(Adds industry background, executive comment, cost cuts)

By Ernest Scheyder

NEW YORK, Oct 28 (Reuters) - Industrial gas supplier Praxair Inc (PX.N) posted an 8 percent drop in third-quarter profit on Wednesday as demand sank, although results beat Wall Street's expectations.

The company supplies gases that are used in sectors most affected by the recession, areas such as construction and technology. That sharply cut both profit and revenue earnings earlier this year, though results have begun to improve.

"Business conditions stabilized globally during the quarter," said Chief Executive Steve Angel, who noted the physical volume of chemicals sold rose sequentially in all markets.

However, cost cuts -- the cost of sales dropped 26 percent -- helped offset the drop in volumes from year-earlier levels, Angel said.

A reliance on cost cuts has made many investors nervous and keen to see improvement from actual sales growth.

For the quarter, the company posted earnings of $325 million, or $1.04 per share, compared with $355 million, or $1.11, in the year-ago period.

Excluding tax benefits, Praxair posted profit of $1.02 per share.

By that measure, analysts expected earnings of $1.00 per share, according to Thomson Reuters I/B/E/S estimates.

Revenue fell 20 percent to $2.288 billion, narrowly missing the $2.299 billion analysts had expected. (Reporting by Ernest Scheyder; Editing by Derek Caney)