UPDATE 2-Paccar net plunges 96 pct; cautious on 2010

* Reports Q3 EPS of 4 cents

* Analysts expected Q3 EPS of 2 cents

* Sales down 50 percent

* Sees muted rebound in North America, more European pain (Adds quote, outlook, background)

CHICAGO, Oct 27 (Reuters) - Truck maker Paccar Inc (PCAR.O)said on Tuesday that its quarterly earnings plunged nearly 96 percent as the global downturn weighed on freight shipments and vehicle purchases.

The company also said it was seeing mildly encouraging signs of stabilization in some key markets, though its industrywide forecast for 2010 suggested another tough year was ahead.

Paccar, which makes trucks under the Peterbilt, Kenworth and DAF brands, reported a third-quarter profit of $13 million, or 4 cents a share, down from $299 million, or 82 cents a share, a year earlier.

Sales fell 50 percent to $2 billion.

Analysts on average expected the Bellevue, Washington-based company to report operating earnings of 2 cents a share on sales of $1.78 billion, according to Thomson Reuters I/B/E/S.

Truck makers had hoped 2009 would be good for demand due to tough U.S. clean air rules that take effect in 2010. The regulations, which require more efficient -- and more expensive -- engines, were expected to prompt fleet owners to stock up on cheaper trucks now. But the recession and credit crunch have effectively killed those hopes.

Mark Pigott, the company's chairman and chief executive officer, called the truck market "very challenging" and said Paccar was continuing to cut costs to "proactively align operating expenses, capital expenditures and research and development with current market conditions."

The company said it was starting to see "some mildly encouraging signs" in the United States, including a rise in freight tonnage.

But it predicted industrywide sales of trucks in North America would only rebound to 110,000 to 140,000 units next year. That is up from 100,000 to 110,000 units expected in 2009, but still well below normal replacement cycle demand of 225,000 to 250,000 units.

It said the recovery in Europe would be even more muted than in North America. It said it expects industrywide retail sales there to be in the range of range of 150,000-180,000 units next year, similar to industry sales in 1992. (Reporting by James B. Kelleher, editing by Dave Zimmerman and Maureen Bavdek)