* Q3 loss 39 cents/shr ex-items; Street view loss 33 cents
* Revenue falls 46 percent
* Shares tumble more than 4 percent
* Sees similar loss in Q4 (Recasts first sentence, adds comment from conference call, updates share price)
By Anna Driver
HOUSTON, Oct 27 (Reuters) - Valero Energy Corp VLO.N reported a deeper-than-expected quarterly loss on Tuesday as weak fuel demand in the slow economy weighed on results and the largest U.S. refiner anticipates a similar loss in the current quarter.
Valero's shares tumbled more than 4 percent in afternoon trading on the New York Stock Exchange.
Refiners have seen their margins hit hard as the global recession hurts demand for products like diesel and stockpiles have swelled. Additionally, lower-grade, or sour crude oil which some of the refineries process has lost much of the cost advantage over higher-grade crude.
"As we strive to lower costs and become even more competitive, we expect the improving world economy will drive demand growth for our products and support a recovery in refining margins and sour crude discounts," Bill Klesse, Valero's chief executive, said in a statement.
He said demand should improve in 2010.
"We are finally close enough to next year for people to be able to say, 'hey, we see some minor signs of improvement," said Roger Read, an analyst at Natixis Bleichroeder.
Refiners will see improvement in demand for fuels such as diesel when the economy recovers and rail and truck traffic pick up again, Read said.
The San Antonio company posted a net loss of $489 million, or 87 cents per share, compared with a profit of $1.2 billion, or $2.18 per share, a year ago.
Excluding one-time items that included a $417 million asset impairment, Valero posted a loss of 39 cents per share, exceeding analysts' average forecast for a loss of 33 cents per share, according to Reuters I/B/E/S.
Citing continue pressure on margins, Valero said it expects a fourth-quarter loss that is at least as large as that reported in the third quarter. Analysts had expected a fourth-quarter loss of 19 cents per share.
The larger-than-expected loss was due in part to higher interest expense, research firm Simmons & Co International said in a note to clients, adding that "poor third-quarter earnings are a given in the sector."
If the slow market persists, Valero said on the call that it will evaluate a reduction in its quarterly dividend. In October, the company had a payout of 15 cents per share.
Revenue fell 46 percent to $19.5 billion.
To control costs, Valero closed its refinery in Aruba and streamlined operations at its Delaware City refinery. The company said it recently began to focus on cutting expenses at its Paulsboro refinery.
Valero, which operates 16 refineries in the United States, Canada and the Caribbean that have a combined capacity of about 3 million barrels per day, processed 2.379 million barrels per day, down 7 percent from a year ago.
Valero shares were down 4.4 percent, or 91 cents, at $19.36 in afternoon trading on the New York Stock Exchange. That compares with a 3 percent decline in the Standard & Poor's index of refining companies .15GSPENRM. (Additional reporting by Matt Daily in New York; editing by Dave Zimmerman, Maureen Bavdek and Matthew Lewis) (Reporting by Anna Driver in Houston)