* Sandvik, Atlas Copco Q2 pretax above forecasts
* Shares rise on earnings resilience
* Companies post sharp falls in order bookings
* Sandvik says has yet to see sign of market recovery
(Adds Atlas Copco, Fenner, background)
By Niklas Pollard and Johannes Hellstrom
STOCKHOLM, July 17 (Reuters) - Swedish engineers Sandvik and Atlas Copco painted a grim picture of demand as the economic slump hit their main markets, although cost cuts dampened plunges in their second-quarter earnings.
"We can't say today that we have seen any real signs of an improvement," Sandvik Chief Executive Lars Pettersson said.
The Swedish rivals were still able to churn out unexpectedly robust results given the bleak economic environment. By 1123 GMT, Sandvik shares were up 5.4 percent, with Atlas Copco's gaining 6.1 percent.
Faced with the steep market decline, manufacturers like Sandvik and Atlas Copco have been scrambling to scale back production capacity and slash costs, shedding thousands of jobs in the process.
Tool and machinery maker Sandvik posted a pretax loss of 2.44 billion crowns ($312 million) compared with a mean forecast of a 2.84 billion loss in a Reuters poll of 18 analysts. Sandvik made a profit of 3.30 billion in the year-ago quarter.
"I think the underlying result is quite good given the expectations in the market," Handelsbanken analyst Peder Frolen said.
Compressor and machinery maker Atlas Copco also beat expectations, posting a 1.94 billion crown ($247.5 million) pretax profit, against the 1.64 billion expected by analysts and down from 3.35 billion a year ago.
Order intake at the firms, competitors in the fields of mining and construction equipment, made for grim reading.
Sandvik, which issued a profit warning last month due to weaker demand and the cost of scaling back production capacity, saw order bookings fall a worse-than-expected 33 percent in the April-June period to 16.5 billion crowns.
Atlas Copco fared little better, saying order bookings tumbled 27 percent year-on-year to 14.5 billion crowns to come in just below the 14.6 billion expected by analysts.
BETTER MOOD
While engineering companies face continued dismal demand, signs the steep economic downturn may be bottoming out have emerged in recent months with European consumer and business sentiment coming off lows hit around the turn of the year.
"I think there is quite a lot indicating that things are bottoming out," Evli analyst Magnus Axen said.
"It is pretty uniform that they (engineering firms) go out on a limb and say they have come far in cutting inventories."
The less bleak economic outlook has only lately shown any indication of translating into improved conditions for Europe's industrial sector. Figures this week for May showed output rising in the Euro zone for the first time since August 2008.
Atlas Copco said it expected demand to remain weak at current levels in the near term, while Sandvik struck a more sombre note, saying it had seen no sign of an upturn and aimed to return to profitability without help from the market.
"That this won't happen in Q3 is obvious considering vacations (slow production in the July-August period) as such, and it is too early to say when we will get there," Sandvik's Pettersson told Reuters.
Sandvik's Swedish peer SKF AB, the world biggest bearings maker, said this week the market was showing signs of pulling out of the nose-dive triggered by the financial crisis and forecast stable demand in the coming months.
Swedish construction and garden tool maker Husqvarna AB said earlier on Friday third-quarter shipments would be somewhat lower than a year ago, reflecting tough trading in higher-margin professional products.
In Britain, conveyer belt maker Fenner warned earlier on Friday its outlook for the full year will be at the lower end of market expectations as orders slowed. (Additional reporting by Victoria Klesty; Editing by David Holmes and Andrew Macdonald) ($1=7.818 Swedish Crown)