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* Expects overall third-quarter gross margin in middle-single digits
* Cuts FY panel shipment view to 1.75-1.80 GW from 2-2.1 GW
* Second-quarter loss $1.30/ADS vs earnings of $0.17/ADS last yr
* Net revenue down 40 pct at $346.1 mln
* Shares reverse course to trade up 7 pct
By Swetha Gopinath
Aug 21 (Reuters) - Trina Solar Ltd cut its full-year forecast for solar panel shipments and said it expects margins to shrink further in the current quarter as prices continue to plummet but shares rose as investors cheered the fall in processing costs.
Margins have eroded and profits have disappeared at solar companies as demand dropped in top market Europe and rapid expansion in manufacturing capacity created a glut of panels, sending prices plunging.
Trina Solar has been cutting processing costs to arrest the steep fall in margins. Second-quarter non-silicon costs fell by 6 cents per watt from the preceding quarter.
The company said it continues to expect manufacturing costs to fall in the third quarter from the second.
Trina Solar is setting itself up to be a low-cost producer over the long term, said Avian Securities analyst Mark Bachman, adding that the cost cuts were a positive for the stock.
Trina Solar shares, which fell 3.7 percent to $4.77 on the New York Stock Exchange on Tuesday, reversed course to trade up 7 percent in afternoon trade.
However, the company expects the rate of decline in costs to be lower than the fall in selling prices, an executive said on a conference call.
China-based Trina Solar, which reported its fourth straight quarterly loss on Tuesday, expects overall gross margin for the third quarter to be in "middle-single digits in percentage terms." Overall gross margin was 19.6 percent in the second quarter.
Trina Solar's move to push up sales in emerging market China, where companies need to sell products at lower prices, is also expected to hurt margins.
"Margin guidance for the third quarter came in far below our expectations, showing that margin pressures remain severe," said Raymond James analyst Alex Morris.
Rival Canadian Solar Inc said last week that gross margin would fall in the third quarter.
Chinese solar companies are also facing pressure in the United States and Europe where they have been accused of flooding the market with cheaper products.
Trina Solar, which is a sponsor of the Renault Formula One Team, expects to ship between 1.75 gigawatts (GW) and 1.80 GW modules this year, lower than its prior forecast of 2.0 GW to 2.1 GW.
Current-quarter module shipments are expected to be in the range of 450 megawatt (MW) to 480 MW, higher than the 419 MW it shipped in the second quarter.
The company reported a second-quarter net loss of $92.1 million, or $1.30 per American Depositary share (ADS), compared with an income of $11.8 million, or 17 cents per ADS, a year earlier.
Net revenue fell 40 percent to $346.1 million.
Analysts on average had expected a loss of 79 cents per share, on revenue of $393.9 million, according to Thomson Reuters I/B/E/S.
Trina Solar's shares have fallen 28 percent this year until Monday, compared with a 16 percent fall in the WilderHill Clean Energy index that also includes stocks of rivals First Solar Inc and Suntech Power Holdings Co Ltd.