Signify logo is pictured at the headquarters in Eindhoven, Netherlands August 30, 2018. REUTERS/Piroschka van de Wouw

By Leo Marchandon and Jerome Terroy

(Reuters) -Signify, the world's biggest lights maker, reported a steeper than expected 8.4% drop in third-quarter sales and lowered its full-year guidance on Friday, hit by falling demand from commercial and public sector clients in the United States.

It now expects sales to fall between 2.5% and 3% in 2025, having previously forecast low single-digit percentage growth.

The company's shares fell as much as 9% to sit among the worst performers on the European STOXX 600 index in morning trading, before paring losses to trade down 5.7% at 1300GMT.

Signify reported an 8.4% decline in third quarter sales in the United States and flagged slower than expected activity, especially in regard to public sector projects that require government funding.

U.S. President Donald Trump's Republican administration has kept a tight rein on public spending, including freezing funding for some infrastructure projects in Democratic states.

Signify also cited increased competition in its trade business, supplying retailers and distributors.

The Dutch group produces connected streetlights and dynamic lighting for landmarks such as the Empire State Building and stadiums like the Allianz Arena in Munich.

QUARTERLY SALES BELOW FORECAST

Signify's quarterly sales were 1.4 billion euros ($1.6 billion), below the average analyst forecast of 1.46 billion euros in a company-compiled poll.

Sales in its core professional lighting segment fell by 7% to 928 million euros, driven by a bigger than expected decline in U.S. demand for lighting solutions in commercial, industrial and public spaces.

The company saw a 25% drop in sales of its conventional lights to 76 million euros, which was expected as traditional lamps and tubes are phased out in favour of more high-tech and energy-efficient options.

Its OEM (original equipment manufacturer) sales were meanwhile dragged 26% lower to 93 million euros by fewer orders from two major customers, which it said was unrelated to the U.S. slowdown.

Signify's OEM segment provides LED components and connected systems to manufacturers, while the Conventional segment sells legacy lighting products such as fluorescent and HID lamps.

The company's consumer division, which includes brands like Philips Hue and WiZ, reported sales of 301 million euros in the quarter, with only a marginal 1% decline that was attributed to the weakening of the U.S. dollar. Growth in India and new product launches supported the business's performance.

($1 = 0.8575 euros)

(Reporting by Leo Marchandon and Jérôme Terroy in Gdansk; editing by Milla Nissi-Prussak)