UPDATE 1-Sony Ericsson posts Q2 loss, sees tough times

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STOCKHOLM, July 18 (Reuters) - Mobile phone maker Sony Ericsson posted a 2 million euro ($3.17 million) operating loss for the second quarter on Friday and said the market would remain challenging for the rest of the year.

Hit hard by a fall-off in demand for its more expensive phones, the handset venture said it would realign operations and aim to chop 300 million euros from its annual operating expenses.

The results were mostly near figures given in a warning issued three weeks ago from the firm, which is owned by Ericsson (ERICb.ST) and Sony Corp (6758.T).

"Challenging market conditions are expected to prevail for Sony Ericsson for at least the rest of 2008, and in particular for the third quarter," the company said in a statement.

Pretax profit was 8 million euros in the quarter versus analysts' post-warning forecasts for 10 million. Sony Ericsson said in late June its pretax result in the quarter was expected to be about break even.

The 2 million euro loss before interest and tax compared with analysts' forecasts for a 2 million euro gain. This was the second consecutive quarter during which Sony Ericsson has had to issue a profit warning and the company has slipped down the global rankings to fifth place.

The results are in stark contrast to world number one Nokia (NOK1V.HE), which on Thursday said earnings per share rose during the quarter and voiced optimism about the rest of the year.