By Tarmo Virki

Analysts have forecast an 8 percent fall in the handset market in 2009, and only last month Nokia's own view was that it would dip 5 percent.

"It is interesting that they lower guidance for 2009 already from their assessment in December. It shows how fast things have worsened in the past month," said Johan Strandberg at SEB Asset Management.

"That's what's driving the stock," said Richard Windsor, technology specialist at Nomura Securities, after Nokia shares reversed their gains of 4 percent to stand 6.9 percent down on the day at 9.52 euros after the results were released.

Nokia's said its underlying fourth-quarter earnings per share were 0.26 euros, missing the average forecast of 0.30 euros in a Reuters poll, but within the wide range of estimates.

Nokia said it aimed to cut annual costs at its key handset unit by 700 million euros ($909 million).

"We are taking action to reduce overall costs and to preserve our strong capital structure. This is clearly our top priority in the current economic environment," Chief Executive Olli-Pekka Kallasvuo said in a statement.

Nokia's figures confirmed that mobile phone sales contracted last quarter for the first time in more than six years.

"In recent weeks, the macroeconomic environment has deteriorated rapidly, with even weaker consumer confidence, unprecedented currency volatility and credit tightness continuing to impact the mobile communications industry," Kallasvuo said.

For analysts' instant views on the earnings release, click on (Reporting by Tarmo Virki, editing by Will Waterman)