(Adds comment on Scania stake, changes dateline)
By Patrick McLoughlin and Hans Nagl
STOCKHOLM/MUNICH, July 23 (Reuters) - Strong results from truck makers Volvo and Scania on Wednesday were overshadowed by worries about weak demand in Europe, despite a brighter outlook for North America, and talk of sector consolidation re-emerged.
AB Volvo , the world's second-biggest truck maker, and Scania , the world's most profitable, beat market expectations with second-quarter earnings but their outlooks were at odds due to their exposure to different markets.
"It's a kind of tale of two cities. Volvo is a recovery story which reflects the overlying business activity in North America...whereas Scania is a better indicator of Europe, where you have had a lagging economy for some time," said a Swedish fund manager.
The trucks industry, which tends to reflect wider economic conditions, suffered in the last two years from slumping demand on both sides of the Atlantic, with most players hit hard.
Volvo was relatively upbeat about North America, its second most important market, where the market was stabilising and customers were now seeking higher-priced trucks.
Scania, more reliant on Europe, was cautious.
"Growth of the economies in Scania's main markets in western Europe continued to deteriorate and our order bookings declined," said Scania Chief Executive Leif Ostling.
Volvo shares jumped to a 14-month high in early trading but by 1350 GMT were down 0.8 percent at 193.00 crowns. Scania dropped 3.4 percent to 213.50 crowns.
CURRENCY SWINGS
Both truckmakers were stung by unfavourable currency swings. Volvo partly blamed a weaker dollar for a 10 percent drop in sales from a year ago to 44.6 billion crowns, while Scania had negative currency effects of 1.25 billion crowns on its 25.1 billion crowns of revenues.
Chronically tough conditions and huge development costs have spurred consolidation and joint ventures in the industry, with experts predicting there is more to come.
Scania and German engineering and trucks group MAN agreed on a gearbox and axles joint venture in April to contain costs, while Volvo has to sell its 45 percent stake in Scania early next year for regulatory reasons. That may spark further realignment in the industry, analysts say.
Volvo said it was evaluating many options for the Scania stake and experts say possible buyers could include MAN or German carmaker Volkswagen , which already holds a stake in the Swedish company.
If no buyer emerges, Volvo could return the stake to its own shareholders in the form of an extra dividend.
CORE TRUCKS
MAN declined to comment on Wednesday on a German magazine report that it may buy the stake in Scania, but added it did not want to sell its own core trucks business.
Sources told Reuters earlier this month that VW was interested in MAN's trucks unit and had held talks with the company, although no firm negotiations were under way.
MAN management has always been against a break-up but some strategic shareholders, which include German insurer Allianz , may favour it if it boosts their stake's value.
Volvo posted pre-tax profits of 2.04 billion Swedish crowns ($251.7 million) for the second quarter, up from 1.31 billion in the same period last year and beating a Reuters poll forecast.
It cited cost cutting and new products at its core trucks division, which includes Renault, Volvo and Mack, as well as reviving demand in the United States.
Volvo still expects North Amercian heavy truck sales to slip this year and European demand to fall five to 10 percent, but added its forecasts may be on the conservative side.
"There is a more positive tone to the company's outlook statements, although the numbers haven't changed," said Michael Raab, auto analyst at Sal. Oppenheim in Frankfurt.
Scania posted second-quarter pretax profits of 1.3 billion crowns, up from 816 million crowns a year ago. (Additional reporting by Niklas Pollard and Jennie Dehlen in Stockholm, Madeline Chambers in Frankfurt)