UPDATE 3-ArvinMeritor loss narrows, sees improvement

* Posts loss 28 cents/shr vs estimate loss 31 cents/shr

* Sees higher revenue, earnings for current quarter

* CEO says there are indications 'the worst is over'

* Shares up more than 6 percent (Adds shares, comments from conference call, byline)

By Soyoung Kim

DETROIT, Nov 10 (Reuters) - ArvinMeritor Inc (ARM.N) reported a smaller-than-expected quarterly loss on Tuesday as cost cuts countered the impact of the economic downturn, and the auto parts supplier forecast improved earnings for the current quarter, sending its shares up more than 6 percent.

The company joins other U.S. auto suppliers in reporting improved results and outlooks after sweeping cost-cutting to address steep production cuts by automakers, bolstering confidence that the sector had seen the trough of a severe downturn.

ArvinMeritor Chief Executive Chip McClure said the quarterly results "may indicate that we are beginning to see signs that the worst is over."

ArvinMeritor achieved its targeted cost savings of $195 million in its core businesses over the past year. That allows the company to reinstate salaries for its U.S. white-collar workers, which have been reduced by 5 percent since early this year, it said.

"Although the road remains uncertain, we believe we put the right things in place to benefit from the conditions we are beginning to see," McClure said on a conference call with analysts.

The auto parts maker posted a loss of $49 million from continuing operations, or 68 cents per share, for the quarter that ended Sept. 30. That compared with a year-earlier loss of $160 million, or $2.22 a share.

Revenue fell 36 percent to $984 million.

Excluding one-time items, the quarterly net loss came to $20 million, or 28 cents per share.

Analysts on average had expected ArvinMeritor to post a loss of 31 cents per share on that basis, according to Thomson Reuters I/B/E/S.

It expects revenue and income before taxes and special items to improve in the current quarter from the July-September period.

ArvinMeritor has been trying to cut its ties to the volatile light-vehicle market and focus on commercial vehicle parts over the past year as the downturn in the U.S. auto industry deepened, saddling automakers and parts suppliers with mounting losses.

ArvinMeritor said it has reduced the light vehicle business to 25 percent of total sales by the end of September, down from 69 percent in 2003.

ArvinMeritor sold its wheels business to Brazilian commercial vehicle parts maker Iochpe-Maxion (MYPK3.SA) for $180 million in the just-ended quarter, and other light vehicle units.

Auto-parts suppliers have suffered from steep production cuts this year by all major carmakers, with U.S. vehicle sales down about 27 percent so far this year to their lowest rates since the early 1980s.

However, the U.S. government's "Cash for Clunkers" incentive plan boosted car sales sharply from late July through the end of August, prompting automakers to increase production to build back inventories.

Shares of ArvinMeritor were up 6.4 percent at $9.25 in morning trade on the New York Stock Exchange.

(Reporting by Soyoung Kim, editing by Dave Zimmerman)