* Trade tensions may be slowing investment
* VAT says wave of investment resulted in overcapacity
* Swiss valve maker to cut hours at one plant, outlook intact
* News send semiconductor industry shares tumbling (Adds background, detail, updates sector shares)
STOCKHOLM/ZURICH, Oct 10 (Reuters) - Swiss vacuum valve maker VAT Group sent a shiver through the semiconductor industry on Wednesday when it said it was cutting working hours at one of its factories due to a softening of demand from the chip equipment makers it supplies.
Shares of chipmakers and suppliers to the industry racked up big losses after VAT said about 400 employees at its site in Haag, northwestern Switzerland, would work shorter hours from Oct. 15 until at least the end of the year.
VAT shares were down 10 percent by 1140 GMT, while Sweden's Atlas Copco and Germany's Pfeiffer Vacuum, which both sell vacuum pumps to semiconductor fabrication plants, were down 4.7 percent and 6.3 percent respectively.
Chipmakers such as Infineon Technologies, STMicroelectronics and AMS, also saw shares drop sharply.
After years of booming demand growth, semiconductor makers are scaling back activity or delaying projects, following a period of large-scale investment.
Weak demand, overcapacity and a trade conflict between the United States and China has dampened investment, as electronics companies wait out uncertainty, analysts say.
The sector has lost steam this year as a weaker smartphone market and worries over lower chip prices and capital spending weighed on shares.
German chip factory builder Exyte shelved plans this month to float on the Frankfurt stock exchange, while Applied Materials, a major VAT customer, issued a weak forecast in August, foreshadowing the end of the two-year chip boom.
VAT Group, whose main production sites are in Switzerland, Romania and Malaysia, had flagged slower demand earlier this year, saying in August that second-quarter orders had fallen 13 percent.
OVERALL OUTLOOK HEALTHY
The company said on Wednesday it expected continued growth in its major markets "but at a more moderate pace," mainly reflecting the postponement of several large expansions of semiconductor and display factories.
VAT said its overall outlook remained healthy, however.
Zuercher Kantonalbank said trade conflicts, including between the United States and China, where VAT is expanding its presence, also weighed.
"A quick resolution of trade conflicts could take the brakes off certain investment projects," analyst Alexander Koller wrote in a note to investors.
A VAT spokesman said that trade tensions may be playing a "small" role in investment decisions, but said the main culprit behind the slowdown was a "small production overcapacity" following a recent wave of investment in manufacturing.
Prices for NAND chips, used for longer-term data storage, have already dropped due to oversupply, while prices for DRAM, chips, which help devices perform multiple tasks, are expected to follow suit.
Morgan Stanley said in a note on Tuesday it expected recent weakness in NAND markets to extend to DRAM in the fourth quarter, suggesting capital spending declines in memory in 2019, due to oversupply.
Goldman Sachs lowered its outlook for the semiconductor capital equipment sector in September, saying oversupply would limit spending.
Other sector suppliers such as Sweden's Atlas Copco in July forecast lower third-quarter equipment demand from the semiconductor industry, citing a spending pause at some of its biggest clients.
Atlas Copco's client list include Intel, Samsung, TSMC, as well as Dutch group ASML.
Elsewhere in the sector, Global Foundries' multi-billion-dollar 'fab' in Dresden, a major hub for Germanys semiconductor industry, has reduced working hours and is seeking to reduce staff through voluntary redundancy, a source familiar with the matter said recently. (Additional reporting by Eric Auchard in London and Douglas Busvine in Frankfurt; editing by Louise Heavens and Adrian Croft)