* Plans to cut 20 pct of Salo plant staff through 2010
* Says no need for full capacity in current market
* Plans could hurt assembly companies
* Has said 2010 handset market up 10 pct, smartphones more (Adds analysts, services providers)
By Tarmo Virki, European technology correspondent
HELSINKI, Dec 13 (Reuters) - Nokia NOK1V.HE plans to cut jobs through 2010 at its only Finnish plant in the town of Salo, even though the company has forecast the handset market to rebound next year, a spokesman said on Sunday.
The world's biggest handset maker has suffered sharply in the economic downturn and has lost ground in the battle for smartphone customers to Apple (AAPL.O) and RIM RIMM.O RIM.TO, prompting it to cut costs.
The spokesman said cuts lasting up to 90 days would affect 20 percent of 2,000 staff at any one time.
"In this market situation, taking into account usual seasonality, at this point we see no need for full capacity," the spokesman said, adding the company would start talks with staff about the plan on Monday.
Nokia said on Dec. 2 it expects cellphone market volumes to grow around 10 percent next year, after this year's sharp fall, while the smartphone market would grow even faster.
The Salo plant -- one of the nine major factories Nokia has around the world -- is the last major handset plant in Western Europe, and focuses on more advanced phone models.
The smartphone market has exploded since Apple introduced the iPhone in mid-2007, and it is expected to surge also next year, but increasing competition is expected to sharply hit the prices.
"Nokia's furloughs at Salo are a clear symptom of the brutal pricing environment vendors are facing," said analyst Pablo Perez-Fernandez from MKM Partners.
"The company needs to do everything possible to protect profit margins, and Finland is relatively expensive," he said.
Finnish media has speculated the company could also close Salo plant, but Nokia Chief Executive Olli-Pekka Kallasvuo told a local paper last month the company was committed to remaining in the town where Nokia has its roots.
In the midst of a recession, Nokia has cut annual costs by around 1 billion euros ($1.49 billion) at its phone unit.
Next year the company plans to also to slash its handset portfolio, aiming to introduce fewer, more iconic, products.
"They are resizing Nokia: cutting down the business, focusing on fewer products," said John Strand, chief executive of Strand Consult. "When they succeed in that, when probability comes back, they can grow."
Nokia's plans to cut production in Salo do not bode well for manufacturing suppliers whose services Nokia dropped in early 2009 amid recession, but who have been looking for new orders as cellphone market recovers.
Nokia has repeatedly said it would not use manufacturing services companies when it has idle capacity itself.
Research firm iSuppli forecast earlier this year Nokia's pullback to cost subcontractors more than $5 billion.
In 2008 Nokia outsourced about 17 percent of manufacturing volume of mobile-phone engines, which include the phone and software that enable its basic operations. ($1=.6733 Euro) (Reporting by Tarmo Virki, editing by Martin Golan)