(Reuters) - China's Suntech Power Holdings Co Ltd joined some peers in signaling a rebound this year in a solar industry hammered by subsidy cuts in the world's two biggest markets, but a weak sales and margin outlook nudged its shares to a life-low.

A massive drop in prices forced the largest solar company by manufacturing capacity to again cut its full-year revenue outlook and warn that profit margins in the third quarter would narrow.

Suntech shares last traded down almost 1.2 percent at a life low of $5.04 on the New York Stock Exchange on Monday. The stock had earlier gained as much as 7 percent. The MAC Solar companies index has slumped more than 31 percent this year, while Suntech shares are down 36 percent.

Suntech expects photovoltaic shipments to rise 15 percent this quarter from the previous three months, but improved demand for solar panels will come at a cost.

Solar subsidy cuts in Germany and Italy earlier this year triggered a global glut of solar panels and drove down prices sharply, denting profits and stock prices at leading solar manufacturers.

Peers including JA Solar Holdings Co Ltd, Trina Solar, MEMC Electronic Materials Inc and First Solar Inc have warned the industry's rapid price declines will further hurt business.

But Suntech and rivals Yingli Green Energy, JinkoSolar Holding Co and ReneSola Ltd are beginning to see the outlook brightening.

Wuxi, China-based Suntech said the cost of its main raw material, polysilicon, was coming down and it expects to see substantial sales growth in the second half of this year.

A recovery in demand for solar products will continue in the third quarter as Italy -- the second-largest market -- improves, broker Collins Stewart has said.

Solar companies are looking at China, India and the United States to drive future growth, and Kleinwort Benson Investors predicts China will be the biggest solar market in three years, followed by the United States.

Suntech plans to expand its wafer capacity to 1.6 gigawatt (GW) by the year-end, up from 1.2 GW currently.

BRIGHT VIEW: JUST A HOPE?

Suntech posted a wider second-quarter loss -- against a market consensus for a profit -- and said it did not see any let-up in competitive pressure.

The company trimmed its full-year revenue forecast to $3.2-$3.4 billion. It also warned it could lose $30 million this quarter from hedging and foreign exchange moves.

Analysts played down the positive shipment outlook.

Aaron Chew, an analyst at Maxim Group, expects Suntech to lose money in this quarter.

Suntech forecast third-quarter gross margins of 11-13 percent, lower than second-quarter margins of 15.1 percent.

"I think it's a profit-less shipment growth ... their operating income and prices and gross margins are going down, operating expenditure is going up," said Susquehanna Financial analyst Mehdi Hosseini.

"Many solar companies have talked about a better outlook, but to me that's just a hope," Hosseini said.