* Q1 core EBIT 3 mln euros vs 6 mln euro loss expectation
* Sees no recovery in Q2
* To cut up to 2,000 more staff, save 250 mln euros/yr
* Shares leap 7 percent
(Adds details, executive quotes; updates share price)
By John Acher and Brett Young
HELSINKI, April 23 (Reuters) - Nordic papermaker Stora Enso (STERV.HE) posted a sharp drop in first-quarter profits to just 3 million euros on Thursday and said it would cut thousands more jobs and costs by 250 million euros to adjust to weak demand.
The paper industry has struggled for more than six years to emerge from a slump caused by soft demand and overproduction, which has held prices down and kept results poor.
The global economic downturn has further depressed the market for basic materials, including paper and board.
Reporting earnings a day after Nordic peers Norske Skog (NSG.OL) and M-real said their businesses struggled in the early part of 2009, Stora said underlying operating profit sank to 3 million euros ($3.9 million) from 140 million a year ago.
The figure beat expectations for a loss of 6 million in a Reuters poll of analysts that had a wide range of estimates.
Chief Financial Officer Markus Rauramo said the profit was virtually nil and said: "This is an entirely unsatisfactory level."
Net sales slumped 25 percent year on year to 2.1 billion euros, missing all expectations in the poll.
Stora's shares traded up 7 percent to 3.99 euros by 1334 GMT, after hitting a two-month high of 4.11 earlier and outpacing a 1.7 percent rise in the DJ Stoxx basic resources index .SXPP.
"The positive reaction comes from the 250 million euro savings campaign, which is a credible project in a big company like this," E. Ohman analyst Timo Jaakkola said.
The company slashed production by nearly a quarter from the January-March 2008 level.
Chief Executive Jouko Karvinen told reporters in a conference call the quarter was "the most difficult anybody has seen in terms of demand reduction since the late '90s."
He said the company expected "more of the same" in the second quarter. "We do not plan for a recovery of any significance in the second quarter of 2009."
"In 2008 the Stora Enso Group was still clearly profitable, but was already making material operational losses in Finland, and this situation continued to deteriorate in the first quarter of 2009," it said.
Karvinen refused to forecast full-year earnings or to predict when recovery could begin, but he said lower costs of energy and pulp could help in the second half.
"All the world's best experts have been desperately wrong (in their forecasts) ... and our rather pessimistic view on market demand has been more correct than anybody else's," he told Reuters on the sidelines of the news conference.
The firm forecast cost deflation this year at 4 percent, mainly from lower pulp costs, excluding internal measures.
Cash flow from operations was 264 million euros, which Karvinen said was "very strong."
Norske Skog and M-real said on Wednesday that weak demand kept their business under heavy pressure in the first quarter, and M-real said the weakness would persist. [ID:nLM82583]
Stora also said on Thursday it would reorganise to grapple with the weak market and slash up to 2,000 administrative jobs over the next year and a half. It said most of the 250 million euros of annual cost savings would be obtained by year's end.
Karvinen said the firm had cut 4,000 jobs in the downturn.
He said the group was forced to come to grips with an imbalance in costs between its Finnish and foreign operations, because the profits generated by units abroad during the quarter were all but eaten up by the Finnish units.
Rauramo said that capital expenditure in 2009 would be cut to 400 million euros from a previous plan of 500 million.
He said the company's cash of 490 million euros at the end of the first quarter exceeded 2009 maturing debt of 450 million. (Reporting by John Acher; Editing by John Stonestreet and Andrew Macdonald) ($1=.7678 Euro)