Aluminum giant Alcoa Inc continued to grapple with the economic downturn in the first three months of 2009 as its measures to stem losses bore fruit, reporting a deficit half as small as the previous quarter.

The downturn was felt hardest in the company’s end markets, which include automotive, transportation, building and construction and aerospace, the company said, adding that metal prices fell 26 percent, resulting in prices 60 percent lower than last summer.

The Pittsburgh, PA-based firm reported a net loss of $497 million in the first quarter on revenue of $4.1 billion. In the same period last year, the firm’s revenues were $6.5 billion.

The result of financial and operational initiatives announced last month to combat the downturn “has been a rapid increase in liquidity during the quarter and a significant operational savings,” chief executive Klaus Kleinfeld said in a statement.

For the quarter, he said the company generated $293 million in procurement savings and $110 million from overhead reductions. A working capital initiative generated $291 million in cash, for a total of $800 million in cash for the year.

The dividend cut made earlier this year resulted in a $430 million savings in cash annually.

During the quarter, the company curtailed 18 percent of its global smelting output plans to curtail smelting by 20 percent at the end of May.

A deal to swap a stake of its soft alloy extrusion joint venture with a a stake in a pair of smelters owned by ORKLA ASA generated a non-cash after tax gain of $130 million.

During the quarter, Alcoa took a $120 million non-cash after tax loss after exiting a venture with Chinalco to buy shares of Rio Tinto. Alcoa got back $500 million of $1 billion it will eventually get from the venture later in 2009. Alcoa has said it expects aluminum demand to bounce back over the next decade with the highest growth in Asia.

Kleinfeld said today he sees [b]oth near-term and long-term catalysts that should improve the prospects for the aluminum industry.

“Current stimulus programs that target infrastructure and energy efficiency will create a demand for the unique characteristics of aluminum – lightweight, strong, durable, recyclable, and conductive. Longer term, the global megatrends of population growth, urbanization, and environmental stewardship will all drive demand for aluminum as the economy improves.”