UPDATE 1-Singapore Air reports Q2 loss, says outlook better

* Q2 net loss S$159 mln vs consensus S$38 mln loss

* Yield won't return to pre-crisis level in next 6 mths

* Advance bookings "gradually recovering"

* No interim dividend because of loss

* Shares end up 0.14 pct ahead of results, underperform YTD

(Adds detail, background)

SINGAPORE, Nov 10 (Reuters) - Singapore Airlines (SIAL.SI), the world's biggest carrier by market value, reported a worse-than-expected quarterly loss as the global economic slowdown hit margins, but the airline said the outlook has improved.

"Advance bookings indicate that demand for air travel has stopped declining and is gradually recovering," SIA said in a statement.

"Market conditions allow for some rollback of promotional pricing but yields are unlikely to get back to pre-crisis levels within the next six months," it added.

SIA has seen falling passenger and cargo demand this year as a global recession hurt business and leisure travel, forcing it to reduce capacity by 11 percent in the 12 months from April. The airline also cut staff salaries and working hours.

Analysts said the growing presence of budget airlines in the region is making life tougher for premium carriers like Singapore Airlines and Japan Airlines (9205.T).

Malaysia's AirAsia (AIRA.KL) and Australia's JetStar are on an aggressive expansion drive despite the downturn and have begun to offer long-haul flights in addition to shorter routes.

JAL, Asia's largest carrier by revenues, is undergoing a drastic restructuring and negotiating for further government support after racking up billions of dollars in losses.

SIA, which warned it July it could post a full-year loss if tough conditions persist, reported a net loss of S$159 million

($114.6 million) compared to a net profit of S$324 million a year ago. For graphic of SIA's earnings, please click here