Sprint Nextel , the No. 3 US mobile service, posted a quarterly loss that was in line with expectations as customer losses slowed from the same quarter the year before.

Sprint shares rose 1.7 percent in early trade and analysts said that the company was making progress in slowing customer losses.

People were looking for it to show improvements and it did. There's still a lot of heavy work ahead of them but they're moving in the right direction, said Roe Equity Research analyst Kevin Roe.

Sprint lost 578,000 postpaid customers who pay monthly bills and commit to long-term contracts, slightly better than the average expectation for 623,574 losses from six analysts contacted by Reuters.

While Sprint still trails far behind bigger rivals AT&T Inc and Verizon Wireless, a venture of Verizon Communications and Vodafone Group Plc , Roe was encouraged to see an improvement from postpaid losses of 1.25 million in the first quarter last year,

Sprint posted a loss of $865 million, or 29 cents per share, compared with a year-earlier loss of $594 million, or 21 cents per share.

Excluding tax related charges, the loss was 17 cents a share, in line with analysts' expectations, according to Thomson Reuters I/B/E/S.

Revenue fell 2 percent to $8.09 billion from $8.21 billion, but was ahead of Wall Street expectations of $8.05 billion.

Sprint lost 75,000 total customers in the quarter, including prepaid customers, who pay for calls in advance and do not commit to contracts.

Sprint repeated its previous forecast that subscriber losses would improve in 2010 versus 2009 and said it would continue to generate positive free cash flow for the rest of the year. It forecast 2010 capital spending of $2 billion.

After initially falling almost 5 percent in pre-market trading, Sprint shares turned around and rose 1.7 percent to $4.16 after closing at $4.09 on New York Stock Exchange.

The shares have already risen 30 percent since around the middle of February.

(Reporting by Sinead Carew; Editing by Lisa Von Ahn and Derek Caney)