* Q1 operating profit down 5 pct at 2.8 bln euros
* Operating profit above poll average of 2.6 bln euros
* Says forecast hinges on German nuclear decisions
* Shares outperform utilities index (Adds shares, analyst comment)
FRANKFURT, May 12 (Reuters) - RWE (RWEG.DE), Europe's fifth-largest utility, beat profit forecasts in the first quarter by gaining market share in Germany and cutting costs in Britain, where it has been losing customers.
Operating earnings in the three months through March were 2.8 billion euros ($4.03 billion), the Essen-based company said on Thursday, compared with the 2.6 billion euro average of 15 estimates from analysts in a Reuters poll. [ID:nLDE7490QF].
RWE shares fell 1.5 percent to 43.18 euros on the results, outperforming a 3.2 percent slide in the Stoxx 600 European utilities index .SX6P.
"The first quarter saw Germany taking it away," Kepler Equities analyst Ingo Becker said.
Power prices in Germany, Europe's largest electricity market, are down a quarter from their height in 2008, while RWE has been losing customers in Britain for three years in a row.
In the first quarter, however, RWE reduced customer bad debts in the UK and increased power sales to industrial customers in Germany by 13 percent in the quarter.
RWE reiterated that it expects operating profit to drop 20 percent and recurrent net income to slump 30 percent this year.
The company's better-than-expected first quarter performance combined with the unchanged forecast for the year raised questions about the business in the remaining quarters.
"However, the full-year outlook is confirmed, meaning the rest of the year is set to look bluesy," Kepler's Becker said.
One of the biggest questions hanging over RWE and other German power producers is the future of their nuclear plants.
German Chancellor Angela Merkel reversed a decision to extend the life of nuclear plants after the massive earthquake and tsunami of March 11 hit Japanese nuclear stations.
She imposed a three-month moratorium on operation of the oldest seven of Germany's 17 nuclear plants and ordered safety checks on all reactors and asked a commission to make recommendations on the industry.
"Pending political decisions concerning the future of nuclear energy in Germany will reveal whether we will have to face additional burdens in 2011 and if so, to what extent," the company said in a statement.
RWE, Europe's largest carbon dioxide polluter, is valued at less than its European peers on the Stoxx 600 utilities Europe index .SX6P as it faces three years of falling profits as well as a massive burden from emissions trading from 2013.
The company is valued at 2.9 times expected earnings before interest, taxes, depreciation and amortization for this year, compared with a multiple of 4.4 for the index, according to Thomson Reuters StarMine.
StarMine weighs analyst forecasts according to their track record and gives more weight to more recent estimates. ($1=.6948 Euro) (Reporting by Peter Dinkloh; Editing by Alexander Smith)