Updated from 3:17 p.m. EST

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Heavy-equipment maker

Caterpillar

(CAT) - Get Report

said fourth-quarter earnings tumbled 32%, hurt by higher operating costs and a global economic downturn that curbed demand for its products, and said it would be drastically cutting its workforce.

The company also forecast lower sales and profits for 2009, saying its expectations for 2009 have "deteriorated." Shares of Caterpillar, one of 12

Dow Jones Industrial Average

components reporting earnings this week, lost $2.99, or 8.4%, to $32.67, near the 52-week low of $31.95.

Caterpillar said it expects revenue this year to fall in a range of $36 billion to $44 billion, resulting in a profit of $2.50 a share, whereas analysts are looking for revenue of $47.4 billion and earnings of $4.32 a share, according to Thomson Reuters.

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The industrial giant also said that a substantial charge for redundancy costs, as well as "severely depressed" production volume will lead to a tough start to the new year. "While we expect the full year of 2009 to be very challenging, profit in the first half, and particularly the first quarter, will be under severe pressure. In fact, a first-quarter loss is possible," the company said in a statement.

Wall Street is currently expecting Caterpillar to notch a first-quarter profit of $1.01 a share on $11.28 billion in sales.

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Caterpillar said it expects 2009 to be the weakest year for economic growth since World War II, and that recessionary conditions should persist in most of the world throughout the year. The company added that it expects the U.S. to be the first major economy to recover, sometime in the second half of the year. However, recessions in Japan and several European countries should last for most of the year.

As a result, Caterpillar said it plans to lay off workers, slash executive compensation and offer buyouts to 25,000 U.S.-based employees.

Deere

(DE) - Get Report

, another equipment maker, laid off some 700 workers in Iowa and Brazil last week, the company told

The Associated Press

in an email Monday.

Last month, Caterpillar said it would cut

executive compensation by up to 50%

in 2009 and offer voluntary buyouts to U.S. management and support employees.

"These are very uncertain times, and it's imperative that we focus ... on dramatically reducing production schedules and costs in light of poor economic conditions throughout the world," Chairman and CEO Jim Owens said in a company statement Monday. "While it's painful for our employees and suppliers, it's absolutely necessary given economic circumstances."

The dire news was delivered alongside Caterpillar's fourth-quarter earnings report. The company reported a profit of $661 million, or $1.08 a share, which tumbled from a gain of $975 million, or $1.50 a share, in the same quarter a year ago. The decline reflects the slowing world economy, which doesn't have the demand it did for Caterpillar's earth-moving machines and other industrial equipment.

Fourth-quarter revenue rose 6% to $12.9 billion from $12.1 billion a year earlier. While engine revenue rose 14% from a year ago, machinery sales increased only 3% due to a 9% decrease in North America. Analysts estimated Caterpillar would earn $1.31 a share on revenue of $12.8 billion.

Caterpillar's results don't come as a complete shock after fellow construction equipment maker

CNH Global

(CNH)

Thursday reported a drop in fourth-quarter revenue and warned of lower sales in 2009.

Due to "continuing volatility in financial markets and consequent uncertainty in the equipment market," CNH said it is preparing for a turbulent 2009 and expects the first quarter to be "particularly challenging."

Shares of CNH were down 7% to $9.22. Deere shares lost 3.6%, to $35.32. Caterpillar rival

Komatsu

has also warned.

Cat Financial, Caterpillar's financing arm, also reported fourth-quarter results Monday. The company recorded a pretax loss of $10 million, compared with a profit of $172 million in the same quarter of 2007. Cat Financial also said revenue fell 15% from a year ago to $661 million.