World number two truck-maker Volvo posted a deeper than expected second-quarter loss yesterday and stood by its forecast that the economic downturn would see its main markets shrivel this year.

But the drain of cash from the group slowed considerably in the quarter compared with the previous three months while the Swedish vehicles maker said it had managed to cut inventories further as it adjusted to the plunging demand.

"Sales and EBIT were clearly worse than expected. On the other hand, cash flow was in line with what I had expected and I think that market expectations were for a much more negative cash flow," Handelsbanken analyst Hampus Engellau said.

Volvo skidded to an operating loss of 6.9 billion crowns (€624 million), down from a 7.2 billion crowns profit a year ago, to come in below the 4.7 billion crouns loss seen in a Reuters poll of analysts.

"I think these are poor results," Erik Penser analyst Kenneth Toll Johansson said, adding that rising debt levels at the group were weakening its balance sheet. "Speculation and questions about a new share issue will follow."

Deep recessions across Volvo's main markets have dampened demand, leaving truck makers racing to cut production capacity, while the global financial crisis has left potential truck buyers starved of money to fund purchases.

Volvo, which manufactures heavy-duty trucks under the Renault, Mack, Nissan Diesel and Eicher brands, as well as its own name, said order bookings in the quarter tumbled 51 per cent, with a fall of 59 per cent in its key European market.

"In terms of market outlook, we maintain our assessment that the total European market for heavy trucks will be at least halved in 2009 compared with last year and that the North American market will decline by 30-40 per cent," the company said.