UPDATE 2-Volvo Q2 orders hit as slowdown spreads

* Q2 order intake -19 pct yr/yr vs forecast -10 pct

* Orders fall mainly due to slump in US, S Europe

* Retains forecast for Europe, U.S. truck markets

* Cuts Brazil truck market outlook (Adds detail, background, analyst comment)

By Niklas Pollard and Sven Nordenstam

STOCKHOLM, July 24 (Reuters) - Truck maker Volvo's orders soured more than expected in the second quarter as a market slump already deeply entrenched in parts of Europe spread across the Atlantic.

After riding high on a strong recovery through 2010 and most of 2011, truck builders are braced for tougher challenges from the euro zone's sovereign debt crisis and a related slowdown in the global economy.

The world number two manufacturer said order bookings fell 19 percent year-on-year across all markets, undershooting the mean forecast for a 10 percent decline seen in a Reuters poll of analysts. Orders were down on an annual basis in all regions.

"The decline was mainly driven by the North American market, which had a very high order intake in the second quarter of last year, and a further weakening in Southern Europe," Volvo said in a statement.

The company, which makes heavy trucks under the Renault, Mack, UD Trucks and Eicher brands as well as its own name, stood by its full-year forecast for a slight fall in the European truck market and growth to some 250,000 trucks in North America.

But it noted U.S. customers had grown more cautious about placing orders due to mounting concerns about the economy.

"Current lower demand means that we are manufacturing at a pace which is slightly too high and are preparing to balance production to meet current demand during the autumn," Volvo said of its U.S. trucks business.

GUIDANCE DOUBTS

North America was a bright spot last year for truck makers such as Volvo and global leader Daimler, due to unveil its results on Wednesday, but since the turn of the year U.S. industry gauges have turned bleaker.

"We've seen a very steep decline in North American orders, which I think was to be expected when you look at the industry data that is available," Morgan Stanley analyst Laura Lembke said. "But that obviously should have a negative impact, not just on Volvo but also on Daimler."

"In that sense what is surprising is that the company has maintained its North American trucks guidance. I think really we should have seen a 5 to 10 percent cut to their outlook on North American trucks."

Demand in Brazil, another market which previously posted good growth, has also slumped since the turn of the year as the introduction of new emission rules has curbed demand.

Volvo cut its forecast for that market to about 90,000 trucks from 105,000 and said it had lowered its production rate in the third quarter to adapt to reduced demand.

Scania, which unlike Volvo does not sell into the U.S. market, last week posted a less severe fall in orders intake than feared and said the market appeared to be stabilising, albeit at a low level, even in the hard-hit European market.

Volvo, which has been mulling whether or not to go ahead with plans for a slight increase in its European production despite the debt turmoil, said overall demand in Europe remained stable and that output was in balance with demand.

Operating earnings at Volvo slipped to 7.34 billion crowns ($1.05 billion) from a year-ago 7.65 billion to come in above a mean forecast for 6.66 billion seen in a Reuters poll of 16 analysts.

However, the earnings were boosted by a positive 495 million crowns from a value added tax credit in Brazil which related to too high payments there in previous years as well as a 100 million boost from insurance compensation in Japan.

These items were not included in the earnings poll. ($1 = 6.9726 Swedish crowns) (Additional reporting by Johan Ahlander and Anna Ringstrom; Editing by David Cowell)