Steelcase Inc, the world's largest office furniture maker, broke even in the second quarter, but guided lower third-quarter earnings as demand remains sluggish, sending shares down 7 percent.

Steelcase, however, said it could breakeven or achieve modest improvement in earnings for the full year, excluding certain items, as long as revenue does not fall more than 27 percent.

Steelcase, along with peers Herman Miller and Knoll, has been hit by weak demand, high office vacancies and corporate downsizing.

On a conference call with analysts, Chief Executive James Hackett said the company could see modest growth in fiscal year 2011.

The company, which posted a 6 percent sequential increase in revenue, expects seasonal improvement to continue into the third quarter.

While the next several quarters will continue to remain challenging for our industry, we believe that the first quarter of this fiscal year may have been low watermark for our revenue in this downturn, Chief Financial Officer David Sylvester said on the call.

He said operating expenses related to product development may increase modestly in the second half of the year.

In a regulatory filing with the United States Securities and Exchange Commission on Thursday, Steelcase also said it has amended its credit agreement, reducing aggregate loan commitment to $125 million from $200 million.

It said the amendment also defers calculation of leverage ratio for the second quarter until Nov. 16 to determine compliance with the covenant.

For the second quarter ended Aug. 28, Steelcase posted breakeven net income, while revenue fell 36 percent to $578.1 million. [ID:nWNAB2880]

Results include a $12.4 million gain associated with increases in the cash surrender value of company-owned life insurance policies, it said.

Steelcase expects to report about breakeven net income for the third quarter as well on revenue of $600 million.

Wall Street analysts were expecting a profit of 3 cents a share, before items, on a revenue of $613.6 million for the third quarter, according to Reuters Estimates.

Shares of the company were down 35 cents at $6.52 Thursday on the New York Stock Exchange. They touched a low of $6.42 earlier. (Reporting by A.Ananthalakshmi in Bangalore; Editing by Maju Samuel and Anil D'Silva)