* Q3 EBIT up 4 percent to 391 million euros vs f'cast 363 million euros
* Seeing some improvement in markets, but no quick recovery
* Interim dividend cut to 0.30 euros from 0.40 last year
* Cost savings largely met two years ahead of schedule
* Shares down 6.7 percent
(Adds CFO comments, updates shares)
By Aaron Gray-Block
AMSTERDAM, Oct 27 (Reuters) - Improved margins helped Dutch chemicals group Akzo Nobel overcome falling sales and post a surprise rise in third-quarter operating profit, but shares fell on nagging worries over the company's outlook.
To cope with the global recession, Akzo Nobel is closing factories and cutting jobs, but warned its markets were still fragile and it did not expect a rapid recovery in housing and construction markets, particularly in the United States.
"We will be able to weather this storm, however long it's going to be, it's just going to be very challenging," Chief Financial Officer Keith Nichols said.
Shares in Akzo Nobel, which have doubled the rise in the wider sector index this year, fell 6.7 percent to 41.81 euros by 1029 GMT, underperforming a 0.2 percent fall in the DJ Stoxx European Chemicals index.
"We would like to see volumes coming back but no other company has strong volume growth because of the crisis," SNS Securities analyst Danny van Doesburg said.
Akzo Nobel is targeting 540 million euros in savings and synergies by the end of 2011, but had already achieved 530 million euros by the end of the third quarter and Nichols said the company was likely to exceed the target.
He added the company still needs to achieve about 100 million euros in synergies from its 2008 ICI deal.
Third-quarter earnings before interest and taxes (EBIT) before one-off items rose 4 percent to 391 million euros, beating the average forecast of 363 million euros from a Reuters poll of seven analysts. The company reported EBIT of 375 million euros in the same period last year.
Over the first nine months of the year, Akzo's core profit margin was 13 percent, in line with last year's, but it achieved a margin of 15.1 percent for the third-quarter.
Akzo Nobel has cut almost 4,000 jobs through plant closures and synergies from its acquisition of ICI last year. It was initially targeting 3,500 job cuts, but abandoned that target in February as it moved to make deeper and faster cost cuts.
MARKETS REMAIN TOUGH
"We have seen some signs of an improvement in emerging markets, but overall we don't foresee a quick recovery," Chief Executive Hans Wijers said in a statement.
Akzo Nobel competes with PPG Industries and Sherwin Williams , which also posted better-than-expected third-quarter results this month but forecast at best modest economic growth in the fourth quarter.
Akzo sales fell 10 percent to 3.64 billion euros as volumes fell 8 percent, with Performance Coatings hit hardest. The Specialty Chemicals unit reported a 5 percent decline in prices, due to falling caustic soda prices.
The fall in caustic soda prices noticed by Akzo Nobel could also have an impact on Belgium's Solvay, which reports its third-quarter results on Thursday.
The world's biggest paint company and producer of do-it-yourself retail brands such as Dulux, Sikkens and Flexa said Decorative Paint sales fell 6 percent, with positive sales volumes .
CFO Nichols said destocking has not come to an end, nor is he seeing a rapid return to restocking, but added that he expects the fragile economic recovery to continue.
Akzo Nobel's business has been hard hit by the economic downturn as lower U.S. and European construction activity hurt its decorative paint sales, while performance coatings sales have been hit by lower demand from the car sector.
Despite the global recession, earnings at Akzo and other chemicals companies, including the largest, BASF, have been supported by aggressive cost cutting, lower raw material costs and better-than-expected pricing.
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(Editing by Will Waterman and Jon Loades-Carter)