World number two truck maker Volvo said on Tuesday it was scaling back production and cutting about 1,400 jobs as the crisis in financial markets hit demand in Europe, its biggest market.

Volvo, which makes trucks under the Renault, Mack, Nissan Diesel and Eicher brands as well as its own name, said its Volvo Trucks arm would begin negotiations with unions on the staff cuts at plants in Belgium and Sweden.

'The European truck demand is now slowing,' the company said in a statement. 'The negative market development has been accentuated by the recent events in the financial markets resulting in financial uncertainty and credit restrictions.'

'The company's customers have become more conservative in replacement of vehicles and some are not being granted loans to finance new trucks,' it said.

Volvo shares rose 2 percent to 61.75 crowns at 0921 GMT, outperforming a 0.2 percent rise in the Stockholm bourse's broad all-share index .

'Given the signals I have seen from the European markets and what the company has said about order intake and market situation, as well as that they said in the second-quarter report that they were reviewing production capacity, this was pretty expected,' Handelsbanken analyst Hampus Engellau said.

'If you look at what the company is doing, they are removing temporary employees and expensive overtime shifts.'

The company, which has already reduced production at Renault Trucks, said it would also implement a savings programme at its Volvo Trucks unit to adjust to lower sales and increasing raw materials costs.-Reuters