UPDATE 3-Nasdaq OMX profit drops as market share erodes

* EPS 44 cents vs 69 cents

* Sees extra $10 million in 2009 cost savings

* Shares fall 9.5 percent (Adds CEO and analyst comments, listings, byline; updates share price)

By Jonathan Spicer

NEW YORK, May 7 (Reuters) - Market operator Nasdaq OMX (NDAQ.O) said earnings fell 22 percent in the first quarter as rivals ate away at its U.S. equity market share and the financial crisis weighed on overall business.

The company's stock fell 9.5 percent in early trading on Thursday, erasing a sharp rise in the previous session ahead of the quarterly results.

The Nasdaq Stock Market parent said revenue from U.S. cash equity trading declined 6 percent, reflecting a deterioration in market share amid a bruising battle with three rivals in the United States. Its European market share also slipped.

The company's chief executive, Robert Greifeld, called the trend that began last year "obviously disappointing," adding on a conference call, "We clearly have to do a better job there."

However, the company's earnings beat expectations by a penny, and it garnered some praise for lowering its 2009 spending projection by $10 million.

New York-based Nasdaq OMX reported earnings of $94 million, or 44 cents per share, compared with $121 million, or 69 cents per share, in the same quarter a year earlier.

Before one-time items -- including $13 million in expenses related mostly to mergers and job cuts -- it earned 48 cents per share. On that basis, analysts' average forecast was 47 cents, according to Reuters Estimates.

"Business was tougher for Nasdaq in the last quarter, but estimates reflected the idea that they had a lower market share in U.S. markets, and general economic conditions also weighed," said Edward Ditmire, analyst at Fox-Pitt Kelton.

"The company did a little better than people were bracing for," he said.

March was a record for U.S. equity trading volume, slightly better than October, the steepest phase of the credit-related selloff.

But Nasdaq's market share has slipped since October as Direct Edge, BATS Exchange and the New York Stock Exchange, run by arch rival NYSE Euronext (NYX.N), have won customers by driving down trading fees.

About 15 percent of Nasdaq's OMX's revenue comes from U.S. cash equities. The company has diversified in the last three years and now runs U.S. and European exchanges offering equities, options and other derivatives. It recently began clearing interest rate swaps and wants to clear stocks.

The value of cash equity trading on Nasdaq OMX's northern European markets tumbled 54 percent in the first quarter compared with a year earlier, as upstart alternative venues grabbed market share there.

The company's operating expenses jumped 40 percent in the quarter. It said it now expects operating expenses of $830 million to $850 million for the full year, down $10 million from a projection it gave three months ago. Expenses were about $820 million in 2008.

Fox-Pitt's Ditmire estimated the $10 million would translate into earnings of 3 cents per share.

The market selloff froze the initial public offering market and pushed many companies below exchange listing requirements, lowering Nasdaq's listings revenue by 11 percent and its market data revenue by 4 percent.

There are now 98 initial public offering applications in Nasdaq OMX's queue, Greifeld said.

The company lost or announced the departure of three key managers in the last couple months: CFO David Warren, transaction services head Chris Concannon, and technology senior vice president Darren Mulholland.

Analysts see the losses as worrisome amid a market slump and price war.

Nasdaq OMX shares were down $2.05, or 9.5 percent, to $19.56 in morning trade on Thursday. They rose 7.5 percent on Wednesday. (Reporting by Jonathan Spicer; editing by John Wallace)