UPDATE 4-UPM posts Q1 loss, sees no demand rebound in 2009

* Q1 opg loss 95 mln euros vs 9 mln loss forecast in poll

* Sees 2009 deliveries "markedly" lower than 2008

* Sees deliveries in Q2 picking up from Q1

* Core units in line, weakness in pulp, plywood - analyst

* Shares up 3 pct after early falls

(Adds details, CEO quotes; updates share price)

By John Acher

HELSINKI, April 29 (Reuters) - Finnish papermaker UPM-Kymmene (UPM1V.HE) reported a deeper-than-forecast loss for the first quarter on Wednesday, hit by poor demand, and said 2009 deliveries would fall "markedly" below last year's level.

After a steep early drop, UPM shares rebounded and rose as much as 4 percent as analysts said the below-forecast performance was confined to the pulp and plywood divisions though operating results were weak across the board.

"Weak demand in most products continues," Chief Executive Jussi Pesonen told a news conference. "We need to focus on cost savings and cash ... Profitability is the No. 1 focus for UPM in the coming quarters."

"This year we do not expect economic activity to pick up in a way that would have a substantial impact on the demand for our main products," Pesonen said in a statement.

The paper industry has struggled for more than six years to emerge from a slump, hit by overcapacity and soft demand, which have kept earnings poor and held prices down.

UPM's January-March losses before interest and tax totalled 95 million euros ($124 million), against a profit of 193 million in the same quarter last year.

The result undershot an average loss forecast of 9 million euros in a Reuters poll of 12 analysts, and was at the low end of the range of estimates.

Shares in UPM opened sharply lower but recovered to trade up 2.9 percent at 6.74 euros by 1323 GMT, aided by a rising Helsinki bourse and outperforming a flat DJ Stoxx basic resources index .SXPP.

Profitability was dented by significantly lower deliveries in most businesses. Results were particularly weak in the pulp division where operating losses deepened to 87.8 million euros in the first quarter from 38.0 billion in the previous quarter.

The pulp business was hit by a 23 percent drop in average prices and a 48 percent slide in pulp sales.

"The big swing is really in the pulp industry which did very poorly, but also plywood was weak," said CSFB analyst Lars Kjellberg. He added that there was scope for the pulp division's results to improve, because pulp prices and demand are starting to pick up. "This may be the lowest quarter for that division."

Nordea analyst Harri Taittonen said: "The weakness was confined to pulp and plywood -- the core divisions were in line or above (expectations)." DELIVERIES TUMBLE

Total paper deliveries dropped to 2.03 million tonnes in the first quarter from 2.59 million in the fourth quarter of 2008.

With no significant upturn in demand in view, Pesonen said: "This means markedly lower deliveries than last year and temporary production downtimes in most of our product lines."

He declined to forecast when a turnaround could occur.

"We have no visibility on where demand for papers will land in the next couple of quarters," he told the news conference.

"There will be a bounce back, but when and how (is unknown)

-- it is very much related to the global recovery and how -- it is very much related to the global recovery and how advertising goes," Pesonen said. Advertising in printed media, pummelled in the global slump, is a driver of paper demand.

UPM has reduced paper production capacity by an annual 2.1 million tonnes and pulp capacity by 210,000 tonnes during the downturn. Pesonen said it would continue to curtail production according to demand. "We are not building inventories."

UPM said second-quarter deliveries would pick up from the first. Cost cuts and temporary layoffs lowered fixed costs by 70 million euros in January-March from a year earlier.

Wood and other raw material costs are falling, but the main impact will come during the latter part of the year, UPM said. Fixed costs are also expected to be lower.

UPM's results followed weak first-quarter reports from rivals Stora Enso (STERV.HE) and M-real (MRLBV.HE) and a warning from Norway's Norske Skog (NSG.OL) that results for the period would be substantially worse than in the fourth quarter of 2008.

($1 = 0.7683 euro)

(Reporting by John Acher; Editing by Simon Jessop and Jon Loades-Carter)

((john.acher@reuters.com; +47 48 11 71 18 or +47 22 93 69 76; Reuters Messaging: john.acher.reuters.com@reuters.net)) Keywords: UPMKYMMENE/

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