Nokia reported a sharp fall in third quarter profit on Thursday after being caught by competitors slashing their prices and consumers cutting spending.

The world's largest mobile phone manufacturer said net income fell 31 per cent to €1.09bn ($1.46bn) in the three months to September 30 against the same period last year.

Gartner, the research firm, responded by cutting its growth forecast for the number of mobiles purchased by consumers in 2008. It said sales of handsets made by Nokia and its competitors would increase by 8 per cent from 2007, down from a previous forecast of 11 per cent.

It is the first time in three-and-a-half years that Nokia has reported a year-on-year decline in its global market share of mobiles shipped to customers. The company's shares closed down 4.2 per cent at €11.30.

Nokia's market share was 38 per cent in the third quarter of 2008, compared with 39 per cent during the same period last year. In the second quarter, Nokia's market share was 40 per cent.

Nokia became the world's largest mobile maker by carving out a leading position in emerging markets, but Samsung and Sony Ericsson are fighting back by cutting prices. The number of Nokia mobiles shipped to Latin America fell 28 per cent in the third quarter compared with the preceding three months, and 8 per cent in Asia-Pacific.

In the US and Europe, where the effect of the financial crisis is seeping into the broader economy, consumers are buying fewer mobiles to replace handsets.

However, Olli-Pekka Kallasvuo, Nokia's chief executive, urged investors to retain confidence in the company. "The basic virtues of Nokia - scale, brand, global position - are, in more difficult times, even more valuable relative to the competition," he said.

Nokia expects its market share to be flat or slightly up in the fourth quarter ­compared with the preceding three months, even though the last part of the year is by far the strongest period because of sales over Christmas.

Mr Kallasvuo said the guidance reflected Nokia's focus on maximising its "bottom line", although he added the fourth quarter could also be "slightly muted" because of the economic downturn.

The company reported ­revenue of €12.2bn for the third quarter, down 5 per cent, and operating profit of €1.5bn, down 21 per cent.

Richard Windsor, analyst at Nomura, said Nokia's profit margin should improve in the fourth quarter as it starts selling its latest smartphones, including its first device with a touch screen.