UPDATE 2-Norsk Hydro Q4 slumps, sees tough 2009

* Q4 EBIT lags f'cast, hit by 700 million crown writedown

* To pay no 2008 dividend, cuts CAPEX

* Says raising fresh financing, may cut output further

* Analyst sees 'terrifying' outlook for metals

* Shares up 0.4 percent in early trade

OSLO, Feb 18 - Norwegian aluminium producer Norsk Hydro saw fourth quarter earnings plummet as it slashed the value of stock following a "dramatic" fall in prices and steeled itself for more gloom in 2009.

The company said it was in the process of raising new funds, which it would be able to borrow, and did not rule out further production cuts as the global economic slump ate further into demand for raw materials.

Underlying earnings before interest and tax fell to 868 million crowns ($124 million) in the three months to December from 1.70 billion in the same quarter a year earlier.

The result, which included 700 million crowns in writedowns, lagged an average expectation of a drop to 1.48 billion crowns in a Reuters poll of 11 analysts whose forecasts ranged from 468 million to 2.26 billion. The forecasts had not included the writedown.

The results reflected the impact of the financial crisis on demand, "which has led to a dramatic drop in aluminium prices," Norsk Hydro said in a statement.

Three-month prices on the London Metal Exchange fell from $2,446 per tonne at the end of September to a low of $1,464 in December before ending the year at $1,497 as the downturn savaging the auto and construction industries intensified.

Hydro said year-end prices were "lower than the cash costs of a substantial portion of global smelter production."

"Demand within main aluminium market segments is expected to remain depressed, a situation that could continue throughout the entire year," Hydro said. "There is substantial uncertainty regarding the timing of a recovery" and the year ahead looked "very demanding".

Norsk Hydro shares, badly beaten last year as the global economic crisis unfolded, were up 0.4 percent at 26.10 crowns at 0848 GMT, valuing the company at about $4.6 billion. Oslo's benchmark index was up 0.2 percent.

'TERRIFYING' OUTLOOK

First-half results for the aluminium metal operations would be "significantly" lower than a year ago, and primary metal production would fall in the first quarter by about 10 percent from the fourth quarter, the company said.

Danske Bank analyst Nils Ove Kjerstad said the result was in line with expectations when adjusted for the writedown.

"But the outlook clearly confirms the picture we've seen lately, with ever more capacity cuts from various players.

"They all say there is a dramatic drop in demand and that visibility is low. It confirms a pretty terrifying outlook for the coming year."

Norsk Hydro has cut production to adjust to weakened demand in the global economic downturn which has hit consumption of aluminium and other metals.

It said further curtailments may be needed.

"The market for metal products (extrusion ingot, sheet ingot, foundry alloys and wire rod) in Europe and North America weakened dramatically during the fourth quarter of 2008," Norsk Hydro said, adding that it expected markets to remain depressed.

Norsk Hydro said it continued to shut, idle or curtail production at high-cost plants and expected "significant" cost reductions this year.

It would propose no dividend for 2008 and would cut capital expenditure by 40 percent.

Hydro said a project to build a huge smelter in Qatar was 60 percent complete by the end of 2008 and on schedule for start-up towards the end of 2009 and ramp-up to full production in 2010.

(Additional reporting by Camilla Knudsen; editing by John Stonestreet)