UPDATE 1-Volvo Q1 loss worse than feared, sees Europe plunge

* Q1 operating loss worse than expected

* Cuts outlook for key heavy-duty truck markets in 2009

* Sees Europe market more than halved this year

* Sees North America market falling 30-40 percent

STOCKHOLM, April 24 - World number two truck maker Volvo posted a deeper-than-expected first-quarter operating loss on Friday and said it expected plunging demand would cut its key European market in half or worse this year.

The Swedish company reported a quarterly operating loss of 4.53 billion Swedish crowns ($536 million) versus a year-ago profit of 6.49 billion and the mean forecast for a loss of 2.90 billion seen in a Reuters poll of 18 analysts.

In a stunning reversal from years of robust demand, the global financial crisis and ensuing collapse in demand for heavy-duty trucks has left Volvo and its peers in the European truck industry struggling to slash capacity and costs.

Volvo, which manufactures heavy-duty trucks under the Renault, Mack, Nissan Diesel and Eicher brands, as well as its own name, said order bookings in the quarter fell 65 percent year on year with a fall of 71 percent in its key European market alone.

The company said in a statement it was scaling back its forecast of European heavy-duty truck demand this year, forecasting that the total market would "be at least halved". It had previously seen a decline of about 30-40 percent.

"The North American market is projected to decline 30-40 percent," it said. Its previous forecast was for the market there to be flat to down around 10 percent from already weak levels recorded in 2008. ($1=8.457 Swedish Crown)