UPDATE 2-Morgans Hotel posts bigger Q3 loss

* Q3 loss $0.94/shr

* Says decline in lodging sector slowed

* Says demand in key markets starting to return

* Says won't pay div till capital structure issues resolved

* Q3 occupancy down 8.9 pct

(Adds conference call details)

Oct 26 (Reuters) - Morgans Hotel Group Co (MHGC.O) reported a bigger quarterly loss, but said the rate of decline in the lodging sector has slowed and the boutique-hotel operator is seeing signs that demand in key markets is returning.

The New York-based company, which also owns the Hard Rock Hotel & Casino in Las Vegas along with a partner, said occupancies in New York were at 91 percent for the quarter.

"In the first weeks of September, we saw an upward trend in average daily rate as well, particularly due to high profile events, including New York's fashion show week in September, the United Nations General Assembly and the U.S. Open tennis tournament," a company executive said in a conference call.

Hoteliers like Starwood Hotels & Resorts Worldwide Inc (HOT.N), Host Hotels & Resorts (HST.N) and Marriott International (MAR.N), too, have said the industry has overcome the worst of its troubles and is starting a slow climb to recovery.

However, hurt by the worldwide economic slowdown, Morgans said it would not give RevPAR outlook for the year.

The company, which added about $200 million of liquidity to its credit line in the last two months, also said it does not plan to pay dividends until its capital structure issues were resolved totally.

For the quarter ended Sept. 30, the New York-based hotel operator lost $28.6 million, or 94 cents a share, compared with $8.9 million, or 30 cents a share, in the year-ago quarter.

Revenue came in at $57.7 million, down from $77.7 million.

Analysts on average were expecting the company to lose 38 cents a share, before special items, on revenue of $59.5 million, according to Thomson Reuters I/B/E/S.

RevPAR at system-wide comparable hotels fell by 32.2 percent, while occupancy declined 8.9 percent.

The company cut operating expenses by 16 percent at system-wide comparable hotels and slashed corporate expenses by 30 percent in the quarter.

Shares of Morgans closed at $3.66 Monday on Nasdaq. (Reporting by Nivedita Bhattacharjee in Bangalore; Editing by Anne Pallivathuckal, Saumyadeb Chakrabarty)