* Chevron says U.S. refining margins declined sharply

* Global production broadly flat, in line with '09 target

* Shares down 1.8 pct in extended trade, near 4-month low (Adds analysts' outlook on refining, context, rivals' shares)

By Braden Reddall

SAN FRANCISCO, July 9 (Reuters) - Chevron Corp (CVX.N: Quote, Profile, Research) warned that second-quarter earnings would be hit by a sharp decline in U.S. refining margins and that any benefits from higher oil prices were largely offset by a weaker dollar, sending its shares down 1.8 percent.

The outlook from the second-largest U.S. oil company only contributed to the gloom surrounding the country's refiners in the face of toughening regulation and a depressed fuel market.

Chevron said on Thursday the decline in second-quarter U.S. refining margins more than offset an increase in marketing margins, while margins were mixed outside its home country.

Refining margins have been squeezed by higher crude prices, which lift input costs, and weak demand due to the recession.

"Downstream results are projected to be significantly lower than the first quarter," Chevron said in its interim update.