Mobile telecoms giant Nokia has cut its sales forecast, in a further sign that demand for mobile phone handsets is flattening.

The company said net sales for the April to June quarter would come in 2-6% lower than for the same period a year earlier, compared with an original forecast of 2-7% growth.

It added that handset sales would grow by 0-4% on the year, down from the 5-10% originally forecast.

Nokia now expects revenues for the period of 6.9bn-7.2bn euros.

Stocks dance

Investors reacted with initial dismay, sending Nokia shares down 9% in morning trade, despite assurances from the company that it remained on track to hit profits forecasts.

On Wall Street, however, investors focused on Nokia's reaffirmation of its profits targets. The stock closed 4.6% higher at $12.55 after gaining as much as 10% at one point.

The Finnish mobile maker's stock rallied on its home market in late trade, and closed up 6.2% at 14.31 euros.

Shares in Swedish rival Ericsson closed down 1.1%, after standing more than 7% down in morning trade in response to Nokia's report.

Stiff competition

Nokia has been hit hard in recent months by increased competition from rival mobile handset makers such as Siemens and Samsung.

Global growth in mobile handset sales has failed to meet earlier expectations, with most manufacturers overestimating consumers' willingness to upgrade to new models.

The industry is now pinning its hopes for a return to buoyant sales growth on the introduction of new generation mobile phones capable of sending images and video clips.

However, the advent of so-called '3G' mobile phone technology is still some way off.

Boomtime over

This is the second time this year that Nokia has guided investors' expectations of mobile phone sales lower.

In April, the company said it expected the mobile phone industry to sell 400-420 million handsets this year, down from its previous forecast of 440 million.

Nokia remains the dominant force in the global mobile handset market, producing more than a third of the mobile phones sold worldwide.