UPDATE 3-Electrolux cautious despite Q2 profit rise

* Q2 core profit 1.03 bln Swedish crowns, vs 565 mln f/cast

* Shares up 9.6 percent, outperform market

* Doesn't expect demand to improve this year

* No full-year earnings forecast

* CEO says expects positive cash flow in Q3

(Adds CEO, analyst comment, updates share)

By Victoria Klesty

STOCKHOLM, July 16 (Reuters) - Electrolux AB (ELUXb.ST) said it saw no signs of demand picking up for its electrical appliances and declined to make a full-year earnings forecast, after lower costs boosted core profit in the second quarter.

Electrolux, the world's second-biggest home appliances maker by sales behind U.S. rival Whirlpool (WHR.N), surprised analysts who had forecast profit to fall, sending its shares up as much as 12 percent.

The company, which makes refrigerators, freezers and washing machines, has cut inventories to meet shrinking demand in Europe -- its biggest market -- keeping costs down. Falling raw material costs and savings from years of restructuring have also lifted profit.

But Electrolux said there are no indications of an immediate improvement in any of its main markets which have been hit by a sharp drop in consumer spending in the worst global economic downturn in decades. Chief Executive Hans Straberg said: "We see a continued decline in demand, with big uncertainty, price pressure on our markets and a risk for rising raw material costs." He declined to make a sales or profit forecast.

Shares in Electrolux were up 9.6 percent at 128 Swedish crowns at 1044 GMT on Thursday, outperforming the wider market .

"When the result comes in almost twice as high as expected this is a fairly reasonable reaction. But as always with this company it will be interesting to see how sustainable this performance is," said an analyst who declined to be named."

Electrolux's caution is in contrast to rival Dutch consumer electronics maker Philips (PHG.AS) which said on Monday that some of its key markets are primed for an upturn in sales, though any growth this year would likely be driven by government spending programmes. [ID:nLD512237]

Electrolux's earnings before interest and tax (EBIT) rose to 1.03 billion Swedish crowns ($131.6 million), excluding extraordinary items, from 793 million a year ago, well above the average forecast of 565 million in a Reuters poll of 14 analysts.

Sales, boosted by currency swings, rose to 27.5 billion crowns, narrowly undershooting market expectations for 27.6 billion, but topping the year-ago quarter's 25.6 billion.