* Return to pre-crisis levels seen in couple if years
* Competition severe on export markets
* Domestic market hit by weak consumer demand
By Svetlana Kovalyova
VICENZA, Italy, Sept 10 (Reuters) - Jewellery exports from Italy, the world's top exporter, are expected to stabilise in 2010 after years of decline, but it will take the industry a few years to return to pre-crisis levels, industry officials said.
Italian jewellers, who sell about 70 percent of their output abroad, have seen their share of global markets shrink over the past seven to eight years as rivals in China, India and Turkey have made inroads, and the global economic crisis in recent years dealt them a heavy blow.
Demand from China and other emerging markets powered a 23 percent jump in Italian jewellery exports to 1.78 billion euros ($2.3 billion) in the first five months of this year, but stripped of the impact of high metal prices, sales volumes were flat.
"These first, timid positive signals come from places which are far away from our traditional markets," Roberto Ditri, chairman of Fiera di Vicenza, which organised an international jewellery fair, said at its opening on Friday.
Export volumes in 2010 are expected to stabilise at the low levels of 2009 and start a moderate recovery next year, Stefano de Pascale, the director of Italian goldsmiths' body Federorafi, told Reuters at the fair.
De Pascale warned against betting too much on expanding sales in the potentially huge markets of China and India because of high import duties and other customs barriers. "China and India are pretty closed markets.
These two countries also have strong jewellery traditions of their own, and it would take a while for local consumers to switch to Italian designs, said Umberto Picchiotti, chairman of upmarket diamond-rich jeweller Picchiotti.
"Real recovery depends on the U.S. market. When it takes off, everyone will take off. It is still the major jewellery market," Picchiotti said, adding sales of his $20,000-60,000 pieces on the U.S. market have picked up this year.
Jewellers at the fair said they were also keeping an eye on economic recovery in the former Soviet block countries, where jewellery demand had boomed before the crisis.
DOMESTIC MARKET GLOOM
Gold jewellery sales in Italy, the European Union's top market by demand, are set to fall 18 percent in volume this year after a nearly 20 percent fall in 2009, a World Gold Council official said.
"People are not buying gold. They are selling it to raise some money ... It would take a few years to return to pre-crisis levels," Daniela Invernizzi, the Italian representative of the industry-sponsored WGC, told Reuters.
Mass-market Italian jewellery such as machine-made chains have been nearly priced out of the market by cheaper products from lower-cost countries, and some companies have had to close down, industry officials said without naming them.
The number of Italy's jewellery manufacturers -- mostly small, family-owned companies -- fell 1.8 percent year-on-year to 10,968 at the end of June, the fair organisers said, adding that about 13,000 jewellers were registered in Italy 10 years ago.
Business reorganisation, investment in innovative technologies and design will help Italian jewellers to beat competition on quality, even if the battle for volumes seems to be lost, industry officials said.
The fair runs from Sept. 10 to Sept. 14 in Vicenza, one of Italy's main jewellery manufacturing districts.
(Reporting by Svetlana Kovalyova, editing by Jane Baird)