* Q4 operating loss 362 mln SEK vs forecast 125 mln loss
* To invest 1 bln SEK in chainsaw chain production unit
* Shares down 5 percent (Adds CEO, analyst quotes, details)
STOCKHOLM, Feb 13 (Reuters) - Garden equipment maker Husqvarna predicted its key European market would stay tough after losses rocketed in the fourth quarter as retailers held back from buying stocks ahead of the key gardening season.
The Swedish group said on Wednesday it would invest 1 billion crowns ($157 million) in a chainsaw chain production unit in Sweden, and increase capacity for cylinders for two-stroke engines for chainsaws in the United States and Sweden.
The world's biggest maker of chainsaws, trimmers, lawn mowers and garden tractors said its operating loss was 362 million crowns in its seasonally weakest quarter, against a year-ago 236-million loss and a mean forecast in a Reuters poll for a 125-million loss.
Its shares were down 5.2 percent at 0812 GMT, underperforming the wider market in Stockholm.
"This is weak across the board," Cheuvreux analyst Johan Eliason said. "These investments are a negative near-term but on a 5-year horizon it opens up for a margin improvement."
Chief Executive Hans Linnarson said European markets weakened significantly in the quarter and its clients were cautious about building up inventories for the coming gardening season.
Weak consumer demand for winter products such as snow throwers and chainsaws also weighed on sales, the firm added.
Sales fell to 4.5 billion crowns from 5.0 billion, against a 4.6 billion forecast.
"The near-term outlook for North America is positive, while the European markets are expected to remain challenging as the macroeconomic uncertainty remains," the company said.