* Q1 net loss $16 mln versus $54 mln loss consensus forecast
* Says operating environment remains challenging
* To invest further in China for expansion
* Shares fall as much as 13 pct in last two sessions
* Stock still up 68 pct so far this yr, outperforms market
(Adds analysts' comments, share move)
By Kelvin Soh and Donny Kwok
TAIPEI/HONG KONG, Aug 6 (Reuters) - Lenovo (0992.HK), the world's No. 4 PC brand, reported a smaller-than-expected first-quarter loss, thanks to demand stoked by China's massive stimulus package, but its stock fell on cautious comments.
Lenovo has been worse hit than rivals such as Acer (2353.TW) and HP (HPQ.N) in the downturn due to its reliance on corporate spending, stemming from its purchase of IBM's (IBM.N) laptop PC arm in 2004, analysts said.
Shares in Lenovo, one of the biggest beneficiaries of China's move to encourage consumer spending, have surged 50 percent in the three weeks to Tuesday, outperforming the Hong Kong market .HSI. By 0300 GMT on Thursday, the stock was down 5 percent after losing 7 percent in the previous session.
"The market's moved a little ahead of itself," said Edward Yen, an analyst at UBS. "There's still little evidence of a pick-up in corporate spending, and that's the biggest worry there."
The PC sector has been showing early signs of a recovery in recent months, with shipments in the second quarter of this year falling less than expected, and chipmaker Intel (INTC.O) declaring that the worst was over for the industry.
On Thursday, Lenovo reported a net loss of $16 million in April-June, its third straight quarterly loss but better than market expectations of a $54 million loss and smaller than the previous quarter's $264 million loss.
China continued to drive much of Lenovo's growth, accounting for about 48 percent of its revenue and led with a 14 percent growth in sales, as the company turned its focus back to its traditional strongholds of China and other emerging markets.
Nearly half of all computers sold under a rural subsidy programme in China in the first six months of this year carried its brand name.
Lenovo remained cautious on its outlook and retained its forecast of returning to profitability in the third quarter ending in December.
"As the global economy remains uncertain, enterprise customers are still conservative about PC spending," the company said in a statement.
Lenovo's overall revenue fell 17 percent in the first quarter from a year ago as companies froze technology spending, and further hit by rapidly declining prices due to the growing popularity of low-cost netbook PCs.
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Some analysts said the company will likely recover faster during the rest of the year as it banks on its pole position in the rapidly growing China market.
"I'm turning more optimistic on Lenovo now and think most analysts will now need to re-look their assessment on the company," said Ellen Tseng, an analyst at Nomura Securities.
"I now think Lenovo could return to profitability ahead of its own expectations, and think that if it can carry on with its current momentum, they should be profitable by September."
Lenovo said it will invest further in China to expand its market share and profitability.
Lenovo grew its share of the global PC market in April-June by 0.5 percentage points to 8.7 percent, research firm IDC said, reversing consecutive quarters of falling market share. (Editing by Anshuman Daga)