HELSINKI – Nokia shares fell on Monday, in the face of a global stock market rally, as worries over tough pricing in the cellphone market sparked downgrades from analysts.

The world's No.1 handset maker warned on Friday it would lose market share in the third quarter as it fights to maintain profit margins, sending its shares as much as 14 percent lower.

On Monday both Deutsche Bank and Dresdner Kleinwort cut their ratings on the stock to 'hold' from 'buy', while many other analysts cut their target prices and estimates.

“The tough price competition is likely to continue. Nokia may have to follow,” Deutsche analyst Jussi Uskola said in a research note.

“It seems sensible to remain on the sidelines until we get more colour on product refresh into fourth quarter and clarity on consumer demand in 2009,” he said.

Manufacturers are facing an increasingly fierce market share battle as demand slows in the United States and Europe, where economies are under pressure from the global credit crunch.

“The phone market is very jittery at the moment,” said Ben Wood, research director at CCS Insight. “Everyone is nervous and buyers are exploiting that.”

Shares in Nokia were down 0.1 percent at 14.18 euros, while the DJ Stoxx European technology shares index rose 2 percent and the benchmark indexes across Europe rose nearly 4 percent after Washington took control of Fannie Mae and Freddie Mac to support the U.S. housing market.

Credit Suisse, Goldman Sachs and WestLB cut target prices for Nokia shares and stuck to their 'neutral' or 'hold' ratings.

JP Morgan cut its target price to 11 euros from 14 euros, and kept an 'underweight' rating on the stock.

Nokia said on Friday it expected the mobile device market in 2008 to be hit by weak consumer confidence in many markets and also cited tough competition in the developing markets, its stronghold.

SAMSUNG SEEKS TO GAIN?

Analysts and retailers said global No.2 Samsung Electronics

has turned more aggressive in pricing its phones when battling for market share, something the company denied.

“We are not engaging in aggressive price cutting,” Samsung spokesman James Chung said, adding the company had not changed its pricing policy.

CJ Investment & Securities analyst M.S. Song said he expects Samsung's handset unit operating profit margin to drop below 10 percent in the third quarter from 13 percent in the second, but did not expect average prices “to show any big drop.”

Samsung took the No. 2 spot in the global handset market from Motorola a year ago, but has struggled to increase its share beyond 15 percent. Despite its Friday warning, Nokia still has close to 40 percent of the global cellphone market.

Gartner analyst Carolina Milanesi said that this year Samsung has started to slash prices faster than before, especially on ageing models, but noted Samsung cut its prices across Asia in the second quarter also for newer models.

“Now they have got more agressive across the portfolio,” Milanesi said.

Nokia followed in July, cutting prices of many of its phones, with the steepest price cuts of up to 10 percent seen for some mid-range phones.

In Finland, home of Nokia, and Britain, sources at retailers said Samsung cut prices on many of its models in early August, with retail prices for some more expensive models falling by up to 100 euros ($143.5). (Additional reporting by Marie-France Han in Seoul; Editing by Louise Ireland)