* Orders fall to 1.56 bln Sfr ($1.44 bln)
* Sulzer expects significantly lower order intake in 2009
* Says does not expect quick recovery in its key markets
* CEO says will do smaller buys, balance sheet strong
* Shares down 1.1 percent
(Adds comments by CEO, analyst; share price)
By Oliver Hirt
ZURICH, July 14 (Reuters) - Swiss engineering group Sulzer AG posted a 29 percent drop in first-half orders as its key markets worsened, and predicted substantially lower orders for the whole of 2009.
Sulzer, which makes pumps for the oil and gas industry and surface coatings for jet engines, forecast on Tuesday "a substantially lower order intake compared to the high level of 2008" and does not expect a quick recovery in its key markets.
"For the company as a whole a recovery cannot be expected before 2011," Chief Executive Officer Ton Buechner told Reuters.
Shares opened down 1.7 percent but regained ground and were 1.1 percent lower at 62.90 Swiss francs by 0749 GMT, when the Swiss mid-cap index was up 0.6 percent.
The stock hit 39.15 francs in March, its lowest level in nearly five years.
"As order backlog feeds through, capacity utilisation will decline and the margin should come under pressure," Vontobel analyst Fabian Haecki said in a note.
First-half orders totalled 1.56 billion Swiss francs ($1.43 billion). They fell 29 percent adjusted for currency effects and acquisitions and 31 percent in nominal terms.
Analysts polled by Reuters had expected Sulzer's orders to fall 30 percent to 1.59 billion Swiss francs.
Meanwhile the company would continue to look for some growth with acquisitions, Buechner said. "We will do further small, service-driven acquisitions if the opportunity arises," he said. "Sulzer's balance sheet is strong and can allow us to take bigger steps even in a downturn."
"In most of the industries Sulzer is in, companies have grown healthily in the good years. We are not looking at companies in distress," Buechner added.
MARKETS STILL WEAK
Sulzer has been at the centre of long-term speculation it could merge with Swiss technology group Oerlikon to form one of Switzerland's biggest industrial conglomerates.
Russian billionaire Viktor Vekselberg, whose investment group Renova holds about 31 percent of Sulzer and a controlling stake in Oerlikon, told Swiss newspaper Handelszeitung in June that a merger was one of many options, though it was too early to think about such steps.
Sulzer said the oil and gas and the hydrocarbon processing industries were particularly affected by the global downturn, while the power generation industry stayed relatively robust.
The pulp and paper industry also remained weak and activity in automotive markets was at a low level, Sulzer said.
All geographic regions were hit by the downturn, although China and Brazil remained somewhat stronger, the company added, reiterating it was cutting costs and capacity to adapt to lower market demand. ($1=1.088 Swiss francs) (Additional reporting by Lisa Jucca; Editing by Greg Mahlich)