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UPDATE 3-Swatch posts first loss in nearly 40 years as pandemic shutters shops

* First loss since Swatch watch launch 1983

* Sees signs of recovery in China and United States

* Proposes 37% cut to dividend

* Shares down 2.3% (Rewrites, adding analysts, share price reaction)

ZURICH, Jan 28 (Reuters) - Swatch Group on Thursday reported its first annual loss since the early days of the Swiss watchmaker almost 40 years ago as the COVID-19 pandemic shuttered shops and smartwatches made inroads into the market.

The company posted an annual net loss of 53 million Swiss francs ($60 million), its first since 1983, the year Swatch Group was set up in its current form and it launched the Swatch plastic watch.

The company closed 384 stores around the world due to the pandemic as well as to political unrest in Hong Kong.

The watch sector has also been late in launching online sales, a sector less badly hurt by the crisis, analysts said.

The shutdown of international travel has also been a big problem for the watch industry with many travelers no longer able to shop at airports or during visits to luxury hot spots like Paris.

There has been rising competition from smartwatch competitors such as Apple whose products count steps, calories, heart rate as well as connect to the internet.

Swatch is more vulnerable than its rivals as analysts estimate it generates at least a third of its sales from watches which sell for under $1,000 - a comparable price point to products made by Apple and others.

Swatch Group also couldn’t fall back on the relatively resilient jewellery sector, with its rings, necklace and earring business far smaller than rival Richemont’s Cartier brand, for example.

Swatch Group sales fell 32% to 5.59 billion francs during 2020, lagging a 22% fall reported by the Swiss watch industry overall. The company proposed cutting its dividend by 37%.

On a positive note, Swatch flagged signs of recovery especially in the United States and China, saying it saw a “good chance” local currency sales would return to 2019 levels this year.

But the market treated the company’s typically upbeat outlook with caution, with the shares down 2.3% in early afternoon trading.

Bernstein analyst Luca Solca said the watch sector would eventually recover as consumers no longer able to travel or go to restaurants now had more money to buy products to cheer themselves up.

The long-term future of watches as desirable items remains intact, said Vontobel analyst Rene Weber.

“It is a luxury item like leather bags or jewellery - they are great hand-made mechanical products and have an emotional touch,” he said.

$1 = 0.8891 Swiss francs Reporting by John Revill; additional reporting by Silke Koltrowitz; editing by Mark Potter and Jason Neely

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