"We're seeing it here in the U.S. and Canada as well now," Oberhelman told Reuters in a telephone interview. Discounting in the third quarter was greater than in the second quarter and is continuing in what have become very competitive U.S. and Canadian markets, Oberhelman said.

"I wouldn't say it's a huge alarm at the moment, but we're watching it very closely," he said.

Earlier Friday, Peoria, Ill.-based Caterpillar reported net income of $336 million, or $0.92 a diluted share, down from $385 million,, or $1.01 a year ago. Earnings were eight cents below the First Call consensus.

Also weighing on earnings was the performance at the company's recently acquired Perkins engine unit, which has been hurt by falling demand in the farm sector. About 33 percent of Perkins' end markets serve agriculture users, Oberhelman said.

"The main issue at Perkins in 1998 is something we did not anticipate earlier in the year, and that's the softness in the ag market," he said. He declined to say how much Perkins' performance weighed on earnings.