UPDATE 3-PSA returns to year profit, targets India

* Year net income 1.134 bln euros, vs 1.161 bln loss in 2009

* Recurring operating income 1.796 bln euro, vs 689 mln loss

* Ahead on performance plan, boosts plan objective

* Peugeot to enter India with commercial, industrial ops

* Shares fall 2 pct

(Adds shares, link to Nissan, more analysts, news conference)

By Helen Massy-Beresford and Gilles Guillaume

PARIS, Feb 9 (Reuters) - French carmaker PSA Peugeot Citroen (PEUP.PA) returned to profit in 2010 and set its sights on India and other fast-growing emerging markets to compensate for a flat European market.

"Whilst 2011 is likely to remain challenging in European markets, our global development should continue," Europe's second-biggest carmaker said.

PSA shares were down 2 percent at 30.55 euros by 0907 GMT, underperforming the STOXX Europe 600 autos index .SXAP, which was up 0.5 percent.

Bernstein analyst Max Warburton wrote in a research note that PSA "continued to look stuck between a rock -- European overcapacity, fragmentation and VW pricing pressure -- and a hard place -- behind most European competitors in ex-European expansion."

Barclays Capital analyst Kristina Church wrote that the results were "uninspiring".

Meanwhile, Nissan (7201.T), Japan's second biggest carmaker raised its global sales forecast for the year by 65,000 units to 4.165 million vehicles, mainly on better-than-expected sales in China in the last quarter.

The automaker's quarterly profit fell 15 percent on a stronger yen and sliding Japanese demand. [ID:nTOE71801W]

EMERGING MARKETS DRIVE

PSA said it would enter the Indian market with commercial and industrial operations through its Peugeot brand, initially producing a mid-sized sedan there.

Chief Executive Philippe Varin told a news conference several possible production locations were being considered, and the group would give details of how much it would invest once the plan was more clearly established.

The company has recently opened headquarters in Mumbai.

Varin declined to give a precise timetable for the India project but said he hoped the company would make a "significant step forward" in 2011.

The move is part of PSA's bid to become more international -- it wants 50 percent of its shares to come from outside Europe by 2015, compared with 39 percent in 2010.

It sees the Chinese market growing 10 percent this year, Latin America 4 percent, and Russia 15 percent.

PSA said its China joint venture with Dongfeng (0489.HK) would pay a dividend for the first time on 2010 earnings.

"It's encouraging that they're starting to get a dividend out of the China business," said Morgan Stanley analyst Stuart Pearson.

PSA said it expected authorities to grant approval for its second China joint venture, with Changan, on light commercial vehicles and the Citroen DS range, in the first half of 2011.

It posted full-year net income of 1.13 billion euros ($1.55 billion), versus a 2009 loss of 1.16 billion, beating a Thomson Reuters I/B/E/S forecast of 955 million euros.

Full-year recurring operating income reached 1.8 billion euros, beating its target of over 1.5 billion euros, as well as an I/B/E/S forecast of 1.68 billion euros. [ID:nLDE69I125]

Recurring operating income for its automotive unit reached 621 million euros, versus a 1.3 billion euro loss in 2009 .

Within overall in-line results, "auto delivered very, very limited profitability," Bernstein's Warburton wrote. "We believe expectations had recently grown that the H2 operating result could have been better," he added.

2011 PROFIT IMPROVEMENT

PSA said it was targeting a 2011 improvement in automotive recurring operating income, and group positive free cash flow.

Faurecia (EPED.PA), the parts maker in which it owns a 57 percent stake, its Gefco logistics unit and financing unit Banque PSA Finance are all expected to deliver increased recurring operating income this year, PSA added.

The carmaker was ahead with its automotive performance plan, and was therefore increasing its objective by 400 million euros to 3.7 billion euros, it said.

Barclays Capital's Church sounded a note of caution, saying: "We remain more sceptical of the sustainability of these savings."

PSA cut net debt to 1.2 billion euros by year-end, versus 2 billion euros at the end of 2009.

It pledged to pay back early the outstanding balance of a 3 billion euro loan it, like rival Renault (RENA.PA), received from the French government to help it weather the crisis.

It said it would pay back 1 billion euros by the end of February and the final 1 billion euros by the end of April. (Editing by Dan Lalor and Will Waterman) ($1 = 0.7327 euro)