UPDATE 2-Volvo cuts truck production, jobs as demand falls

(Adds analyst comment, detail, background, updates share)

By Niklas Pollard

STOCKHOLM, Sept 30 (Reuters) - World number two truck maker Volvo (VOLVb.ST) said on Tuesday it was scaling back production and cutting about 1,400 jobs as the crisis in financial markets hit demand in Europe, its biggest market. Volvo, which makes trucks under the Renault, Mack, Nissan Diesel and Eicher brands as well as its own name, said its Volvo Trucks arm would begin negotiations with unions on the staff cuts at plants in Belgium and Sweden.

"The European truck demand is now slowing," the company said in a statement. "The negative market development has been accentuated by the recent events in the financial markets resulting in financial uncertainty and credit restrictions."

"The company's customers have become more conservative in replacement of vehicles and some are not being granted loans to finance new trucks," it said.

Volvo shares rose 2 percent to 61.75 crowns at 0921 GMT, outperforming a 0.2 percent rise in the Stockholm bourse's broad all-share index .

"Given the signals I have seen from the European markets and what the company has said about order intake and market situation, as well as that they said in the second-quarter report that they were reviewing production capacity, this was pretty expected," Handelsbanken analyst Hampus Engellau said.

"If you look at what the company is doing, they are removing temporary employees and expensive overtime shifts."

The company, which has already reduced production at Renault Trucks, said it would also implement a savings programme at its Volvo Trucks unit to adjust to lower sales and increasing raw materials costs.

WEAKNESS SPREADS

Truck makers across Europe have seen their production systems straining to meet demand over the past few years, but in recent months there has been growing evidence that the weakness blanketing the U.S. market has spread across the Atlantic.

Last week Volvo Chief Executive Leif Johansson reaffirmed in a Reuters interview the group's outlook forecast of a 10 percent expansion of the European heavy-duty truck market this year, but cautioned the financial markets crisis was having a big impact.

Volvo said the adjustments at its Volvo Trucks unit would rebalance production capacity to more normal levels.

The company said the staff cuts would include 400 temporary positions in the Belgian city of Ghent, where a temporary night shift would be closed at the end of the year, while 610 jobs would be affected in the southern Swedish city of Gothenburg as it reduced its evening shift there.

About 370 jobs would be cut at the company's cab plant in Umea, northern Sweden, which would scale back operations in April next year, it added.

"I think we could see a hefty slowdown. I don't know if they will have to lay off more people, but they will probably have to do more besides this," Evli analyst Michael Andersson said. (Additional reporting by Katarina Gustafsson; Editing by Quentin Bryar and Sue Thomas)