UPDATE 5-Sprint posts strong growth in prepaid subscribers

* Q1 EPS ex-items $0.03 vs Wall Street view of $0.04 loss

* Q1 rev $8.2 bln vs Wall Street view $8.3 bln

* loses 1.25 mln postpaid users; adds 764,000 Boost users

* Shares rise 12 percent on NYSE (Adds executive quotes, share price update)

By Sinead Carew

NEW YORK, May 4 (Reuters) - Sprint Nextel Corp (S.N) posted a surprise quarterly profit excluding items, thanks to cost cuts and strong growth in a new service where customers pay for calls in advance, sending its shares up 12 percent.

However, the No. 3 U.S. mobile service suffered its worst ever loss of valuable monthly bill-paying customers, who sign contracts of up to two years, as they defected to rivals. Business clients also left due to the weak economy.

"There are no clear signs that the business has made its turn," said Piper Jaffray analyst Christopher Larsen.

Sprint's net loss swelled to $594 million, or 21 cents per share from $505 million, or 18 cents per share in the same quarter a year ago. Before items such as amortization, it had a per share profit of 3 cents, compared with the average analyst forecast for a loss of 4 cents, Reuters Estimates said.

Sprint said it cut its work force by about 12.5 percent to 49,000 workers in the quarter, and told analysts on a conference call that it will cut another 1,000 jobs this quarter, as part of a previously announced plan.

Revenue fell 12 percent to $8.21 billion, below the average analyst expectation for revenue of $8.29 billion.

Chief Executive Dan Hesse said on the call that he was pleased by growth in prepaid, but that Sprint was being hurt by the economy and needed to do more to stem defections of monthly bill paying customers, called post-paid subscribers.

Sprint lost a net 1.25 million postpaid customers in the quarter, compared with the average forecast for a loss of 1.1 million customers from eight analysts contacted by Reuters.

PREPAID GROWTH

Sprint's Boost unit added 764,000 net new prepaid customers, who pay for calls in advance and do not commit to long-term contracts. Sprint said the growth was primarily driven by a new $50 unlimited service plan from Boost.

Eight analysts contacted by Reuters had on average been expecting Sprint to add about 185,000 prepaid customers, with estimates ranging from a loss of 150,000 to a gain of 600,000.