By Sachi Izumi

Hitachi lost $1.9 billion in market value as trading volume spiked to its highest in at least a quarter century.

The loss would be the biggest ever by a Japanese manufacturer and put Hitachi in worse shape than rivals such as Sony <6758.T> and Toshiba <6502.T>, which have also been hit by the economic downturn and surging yen but have warned of much smaller losses.

Investors had thought Hitachi, Japan's largest electronics maker with about 400,000 employees and products ranging from rice cookers to nuclear reactors, might be in a better position to weather the economic crisis.

"Since Hitachi's business portfolio covers a wide range, it was seen as resilient to a downturn compared to companies like Toshiba that focus on the chip sector," said Standard & Poor's analyst Hiroki Shibata.

"But now its automobile, semiconductor, industrial equipment, flat TV -- almost all of its operations -- are facing an earnings slump, and conditions are very, very severe for it," he said. "It will probably take a long time to recover."

Hitachi said on Friday it now expects to post a net loss of 700 billion yen ($7.8 billion) for the year to March 31, instead of its previous forecast for a 15 billion yen profit, as demand slumps across all of its major business divisions.

Hitachi's automotive components business has been battered by slumping car sales worldwide, while tough competition and sluggish demand are hurting its flat TV operations, and its chipmaking joint venture has fallen deep into the red.

It was also forced to write-down deferred tax assets due to the company-wide slide in profitability.

Hitachi said it would respond by exiting unprofitable businesses, closing plants and other restructuring steps in a bid to cut 200 billion yen in fixed costs by March 2010. It said it would cut jobs but did not say how many.

RENESAS HURTS

Hitachi's shares closed down 17 percent at 244 yen, the lowest since April 1980. Volume spiked to 100 million shares.

The loss warning led Moody's Investors Service to downgrade its long-term debt ratings on Hitachi to A2 from A1, which could raise its borrowing costs. It put Hitachi's ratings under review for a possible further downgrade.

S&P also warned that it may cut its ratings.

Hitachi still expects to book an annual operating profit, but it slashed that forecast by 90 percent to 40 billion yen.

"Hitachi's restructuring has been a lap behind its rivals and it has had many things to tackle, but its earnings were strong until the first half because the market was good," said Daiwa Institute of Research senior analyst Masaharu Sato.

"But now with the market sinking, the negative aspects are all coming out."

Hitachi's bottom line is also hurt by its struggling microchip joint venture Renesas Technology, in which it owns 55 percent with Mitsubishi Electric Corp <6503.T> holding the rest. The venture expects a 206 billion yen net loss.

Chipmakers around the world are grappling with slumping prices and weak demand.

Woes at Renesas, the world's No.7 chipmaker, also forced Mitsubishi Electric to post its first third-quarter net loss in seven years on Monday and slash its annual net profit forecast by 92 percent to 10 billion yen.

Shares in Mitsubishi Electric fell 9.1 percent to close at 382 yen. The Nikkei average <.N225> ended down 1.5 percent.

($1=90.00 Yen)

(Additional reporting by Taiga Uranaka; Editing by Michael Watson)