SAN FRANCISCO, May 7 (Reuters) - Online jewelry retailer Blue Nile Inc's (NILE.O) posted better-than-expected quarterly net profit that dropped by nearly a quarter as receding demand in a recession offset waning diamond prices.

Its shares rose 3 percent in light after-hours trade on Thursday.

The company, which said it was gaining market share in a challenging selling environment, said sales trends for 2009 were expected to improve, with a year-over-year sales increase foreseen in the fourth quarter.

Blue Nile also said 2009 adjusted earnings would exceed those in 2008.

Jewelry has been one of the hardest hit segments in the retail landscape as consumers cut out spending on purchases deemed unnecessary or expensive.

First-quarter net profit came to $1.9 million, or 13 cents per share, compared with $2.6 million, or 16 cents per share, a year earlier.

Sales slid more than 11 percent to $62.4 million.

Blue Nile said its gross margins rose in the quarter as global diamond markets fell in the downturn and the company trimmed costs.

While Blue Nile continues to face weak demand, opportunities for market share gains have increased, as rivals such as Fortunoff and Christian Bernard stores go under.

Earlier this year, Blue Nile said the uncertainty in the economy prevented it from giving a financial outlook.

Shares rose to $46.00 in extended trade after a $44.58 close on the Nasdaq. (Reporting by Alexandria Sage; editing by Gunna Dickson)