* Says U.S. entering recession, forecasting is difficult
* Cuts 2009 estimates for its end-markets
* Profit before charges beats forecasts
* Shares trade slightly higher (Adds executive and analyst comment, stock reaction)
NEW YORK, Oct 20 (Reuters) - Diversified manufacturer Eaton Corp (ETN.N) issued a fourth-quarter profit forecast that fell short of expectations on Monday, even as it reported higher-than-expected quarterly earnings amid strength in its electrical and hydraulic segments.
The company also reduced estimates of its end-markets' performance in 2009, but Eaton shares gained amid relief the reductions were not as deep as they could have been.
"We saw ... credit markets render an early economic forecast almost irrelevant," Chief Executive Sandy Cutler said on a conference call, adding the current environment made forecasting difficult. "We now believe instead of a third- quarter resurgence in the U.S. economy, we are entering a period of recession."
Cleveland-based Eaton, whose products range from industrial automation technology to hydraulics used in airplanes and truck drivetrain systems, said its end-markets could decline in 2009, compared with its earlier forecast of 4 percent to 5 percent growth.
The company, which relies on detailed economic forecasts for its planning, said it expected the U.S. economy to begin to recover by the second half of 2009. It expects emerging markets to grow at a slower pace next year, estimating China's economic growth, for example, at 8.5 percent, down from more than 10-percent growth in recent quarters.
It estimated fourth-quarter operating earnings before charges of $1.70 to $1.80 per share, below analyst estimates of $1.91.
Eaton said third-quarter net earnings rose 22 percent to $315 million, or $1.87 per share, compared with $258 million, or $1.71 per share a year earlier.
Operating earnings, stripping out acquisition-related charges, were $1.95 per share. On that basis, analysts, on average, expected profit of $1.89 per share, according to Reuters Estimates.
Revenue rose 25 percent to $4.11 billion, compared with Wall Street forecasts for sales of 4.14 billion. Acquisitions accounted for the bulk of the sales advance.
Eaton shares, which have lost some 18 percent of their value this month, were up 32 cents at $44.74 in early trading on the New York Stock Exchange.
"Though the stock does not look expensive, we don't think it can outperform without coming to a sense of where earnings will trough, and it's too early to have any conviction on that front," Morgan Stanley analysts wrote in a research note. (Reporting by Nick Zieminski; Editing by Derek Caney and Maureen Bavdek)