UPDATE 1-Embraer grounds military cargo jet after flight test incident

(Adds details of incident, press report, share reaction)

SAO PAULO, Nov 8 (Reuters) - The first prototype of Embraer's new military cargo jet has been grounded after a stall test last month pushed the aircraft beyond its operating limits, the Brazilian planemaker said on Wednesday, adding that the project is still on schedule.

The KC-390 prototype suffered no damage to its "primary aircraft structure," but some of its access hatches and aerodynamic fairings must be repaired before the aircraft can resume flights, Embraer said in a statement.

Embraer shares fell as much as 2 percent in Sao Paulo trading before paring losses to 1 percent.

Earlier on Wednesday, Brazilian trade publication Aero Magazine reported that test equipment inside the plane had come loose during a maneuver, throwing off its center of gravity, according to an unnamed engineer involved in the project.

Embraer did not address the cause of the Oct. 12 incident, but said the crew recovered control after losing substantial altitude that surpassed the plane's airspeed and load factor envelope. The company said at the time it was testing the KC-390 at low speeds with simulated ice shapes on the aircraft.

"All aircraft systems have behaved as expected during the whole flight," Embraer said in the statement.

Flight records from plane-tracking website Flightradar24 on Oct. 12 show the KC-390 prototype lost more than 8,000 feet (2,400 meters) in altitude during a two-minute stretch before leveling off at around 3,000 feet. Pilots deal with an aerodynamic stall, or loss of lift, by pointing the nose downwards and dropping altitude to get air back under the wings.

Embraer said the incident would not affect the certification schedule of the KC-390, which enters service with the Brazilian Air Force next year.

Portugal has agreed to purchase six of the KC-390 airlifters, Brazil's President Michel Temer said in August.

(Reporting by Brad Haynes; Editing by Lisa Shumaker)