WRAPUP 2-U.S. industrial earnings inject note of caution

* Tyco, Timken, Kennametal beat forecasts

* Kennametal sees slowing industrial output

* Harsco slashes 2010 estimates, shares fall

(Adds detail on autos, Europe, updates shares)

By Nick Zieminski and Scott Malone

NEW YORK/BOSTON, July 29 (Reuters) - U.S. manufacturers' earnings injected a fresh note of caution about the U.S. and global industrial economies on Thursday, even as most companies continued this quarter's trend of beating Wall Street estimates.

Industrial conglomerate Tyco International Ltd (TYC.N) issued a fiscal fourth-quarter profit forecast that was below analysts' view, and its chief executive, Ed Breen, said the economic environment continued to be "challenging."

Kennametal Inc (KMT.N), a maker of industrial tools for a broad range of markets, said it expects gradual improvement in worldwide industrial production, but more modest growth in Europe. It said growth should be stronger in the July-December period than in the first half of 2011.

And Harsco Corp (HSC.N), a maker of products used in construction, slashed its 2010 estimates nearly in half.

"Increased project deferrals, postponements and cancellations, as well as pricing pressures, have significantly diminished our outlook," CEO Salvatore Fazzolari said about Harsco's infrastructure segment. Shares fell 11 percent.

Construction, as in Harsco's case, is hardly the only area with an iffy outlook. Another is autos, key for many manufacturers, where strong results have failed to dispel fears of slowing demand in markets like China and the United States. [ID:nTOE66S01Y]

REASONS FOR CAUTION

Sluggish jobs growth remains an obstacle to a U.S. revival, since it hurts both consumer spending and the housing market. U.S. second-quarter growth is expected to be revised lower in Friday's GDP report.

In Europe, fears of a debt crisis have abated and many companies surprised with strong results; but economic revival is likely to be muted since the effects of government austerity measures are yet to be felt. [ID:nLDE66S15P]

(Breakingviews [ID:nLDE66S0MS])

Electrodes maker GrafTech International Ltd (GTI.N), which serves auto, electronics and energy customers, said European demand would push operating income down in the third quarter compared with the second. It also cited "concerns about the stability of the recovery." [ID:nSGE65S0KD]

GrafTech shares fell 2.8 percent.

Oliver Pursche, co-portfolio manager of the GMG Defensive Beta Fund, noted that improved earnings are still being helped by the cost cuts companies introduced during the recession.

"What we are concerned about, and Tyco is a good example of this, is if top-line growth isn't substantial, where are they going to grow from here?" he said.

"If they haven't figured how to grow on a relative basis in the last 12 months, they're going to have a very difficult time going forward."

Tyco stock gained 0.1 percent in morning trading on the New York Stock Exchange after opening lower.

BEATING ESTIMATES

Still, most companies continued to beat profit expectations, a trend seen across a wide range of industries so far this earnings season.

Tyco's profit topped consensus estimates even as its sales fell slightly short, partly reflecting the sale of a business. [ID:nN29152458]

Kennametal earnings also beat, but the company "guide(d) lower," according to J.P. Morgan. [ID:nN29180275] Shares fell 2.2 percent.

Profits were higher than expected at construction and engineering company Emcor Group Inc (EME.N), [ID:nSGE66R0LT] and at Pentair Inc (PNR.N), a maker of water filters and electrical enclosures. [ID:nN29172434] Emcor gained 0.3 percent while Pentair was down 1.4 percent.

Brunswick Corp (BC.N), which makes pleasure boats, swung to a quarterly profit as shipments to dealers increased. [ID:nN29132853] Brunswick shares rose 11.1 percent, making it one of the top percentage gainers on the NYSE.

Another stand-out was bearings maker Timken Co (TKR.N), whose stock jumped 5.3 percent. Timken beat and raised estimates by a wide margin for the second straight quarter, citing a global economic recovery. [ID:nN29171045] Bearings maker Kaydon Corp. (KDN.N) also beat estimates; [ID:nSGE66P0G7] its stock rose 0.6 percent.

U.S. industrial companies have highlighted strong demand in Asian and Latin American markets this earnings season, with more modest growth in Europe and the United States.

The Federal Reserve, in its Beige Book report this week, said U.S. manufacturing activity continued to increase since its last report, but said "the pace of activity slowed or activity leveled off" in a number of districts.

Meanwhile, a quarterly survey by PricewaterhouseCoopers found corporate leaders are concerned about issues like legislative and regulatory pressures, as well as higher corporate taxes.

About 45 percent of U.S. industrial manufacturers are optimistic about the next 12 months, only slightly above the number who say they are uncertain. [ID:nPnNY42277] (Reporting by Nick Zieminski and Scott Malone; additional reporting by James B. Kelleher in Chicago; editing by John Wallace and Gerald E. McCormick)