CHICAGO - Deere & Co , the world's largest maker of farm equipment, reported a sharper-than-expected drop in quarterly profit on Wednesday and slashed its forecast for full-year earnings, blaming the deepening global recession and volatile foreign exchange rates.

The company said profit fell 45 percent to $203.9 million, or 48 cents a share, in the first quarter ended on January 31 from $369.1 million, or 83 cents a share, a year earlier.

Analysts on average expected earnings of 62 cents a share, according to Reuters Estimates.

Sales fell 1 percent to $5.15 billion.

Every market was down twice as much as they thought it would be, Longbow Research analyst Eli Lustgarten said.

In addition, profit fell more than 50 percent at the company's financial services unit on increased provisions for loan losses.

Moline, Illinois-based Deere cut its full-year earnings outlook by more than 20 percent, to $1.5 billion. Just three months ago, it had forecast $1.9 billion.

But the company warned of more risk on the downside for its fiscal-year outlook. The coming year remains unusually uncertain, it said in a statement.

After enjoying five years of double-digit percentage gains in sales of high-horsepower tractors and combines, Deere and rivals CNH Global NV and Agco Corp are now facing a pullback in spending.

The credit crunch has pummeled industry sales in what until quite recently were fast-growing emerging markets like Russia, Brazil and Eastern Europe. And the recession in the United States, a critical market, has farmers waiting for the economic dust to settle before making any big capital purchases.

As a result, Deere said it expected its equipment sales to decline about 8 percent this year. Three months ago, it had forecast flat sales for the year.

In trading before the market opened, Deere shares initially jumped as much as 2.7 percent, a bounce Lustgarten called a relief rally that the results weren't worse.

But as the premarket session continued, volume picked up, and the shares fell 5.3 percent to $31.72.

The stock closed Tuesday's session at $33.49, down 65 percent from the 52-week high of $94.89 it touched last spring.

(Additional reporting by Ellis Mnyandu; Editing by Lisa Von Ahn)

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