Japan's Panasonic Corp <6752.T> reported a smaller-than-expected quarterly loss and sharply lifted its half-year outlook as it cuts costs to cope with a firmer yen and steep price falls in flat TVs.

Panasonic reiterated its annual forecast for its net loss to halve, saying it was too early to call a full-fledged recovery.

Rival Sony Corp <6758.T> also beat market expectations with its second-quarter earnings last week and, though keeping its official forecast for a full-year loss, said it was aiming to break even.

Panasonic, the world's No.1 plasma TV maker, saw sales of its electronics gadgets slow as the global downturn forced consumers to tighten their purse strings, while sluggish corporate capital spending hit demand for its factory automation equipment.

The maker of Viera TVs and Lumix digital cameras is shutting 40 manufacturing sites and shedding 15,000 jobs to counter the headwind and better compete with Sony, Samsung Electronics Co Ltd <005930.KS> and LG Electronics Inc <066570.KS>.

Panasonic, which vies with Sony for the title of the world's largest consumer electronics maker, kept its net loss forecast of 195 billion yen ($2.06 billion) for the year to next March, but halved its net loss forecast for the six months to September to 100 billion yen.

The company's U.S.-listed shares rose more than 4 percent after the announcement in early New York trade.

The guidance suggests Panasonic will regain an operating profit in Q2, and I think we will see signs of improvement in cost efficiency, said Seiichiro Iwamoto, a senior fund manager at Mizuho Asset Management.

But that doesn't mean that the full-year outlook is conservative. It's not yet clear whether Panasonic's flat TV and device sales will grow as planned.

Sluggish consumer sentiment in the U.S. and in Europe could continue to weigh on prices of flat TVs, even as the year-end shopping season approaches, he said.

Panasonic's outlook represents a net loss for the full year to next March that is half as big as its 379 billion yen loss last year but worse than the consensus of a loss of 185 billion yen in a Reuters poll of 18 analysts.

At the operating level, which shows a company's core earnings strength and comes before restructuring charges, it maintained its annual outlook for a 75 billion yen profit, up 3 percent.

SANYO DEAL NEARS

In an effort to improve profitability by boosting its presence in the green energy business, Panasonic is planning to acquire Sanyo Electric Co Ltd <6764.T>, the world's largest maker of rechargeable batteries.

The merged entity would be a dominant player in auto batteries for hybrid cars, which are enjoying strong demand.

Panasonic aims to win approval from anti-monopoly regulators for its bid by September, Panasonic Director Makoto Uenoyama told a news conference on Monday.

In April-June, Panasonic booked a net loss of 53 billion yen, down from a 73 billion yen profit a year earlier and compared with analysts' estimate of a 58 billion yen loss.

The quarterly loss was much smaller than a 444.3 billion yen loss in the previous three months, but still lags the performance of its South Korean rivals.

Helped in part by the softer won currency, both Samsung and LG posted a bigger net profit in the latest quarter than a year earlier.

The probability of a full-year (operating) profit has increased, Uenoyama said.

But we can't see what is in store for the second half until around October. At this point, the outlook isn't clear enough for us to change our full-year forecast, he said.

The U.S.-listed shares of Panasonic rose 69 cents to $16.50 in early New York trade on Monday.

Its shares in Tokyo had closed up 0.1 percent at 1,502 yen ahead of the earnings announcement, slightly underperforming the Tokyo stock market's electrical machinery index <.IELEC.T>, which rose 0.4 percent. The stock has gained 41 percent since April, while the sector index has put on 34 percent.

($1=94.73 Yen)

(Additional reporting by Taiga Uranaka; Editing by Michael Watson/Will Waterman)

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