UPDATE 2-Carrefour says no hostile intentions against Casino

* Carrefour says it was legal to talk with Diniz

* Deminor says Carrefour should have told market of talks

* Deminor wrote to Carrefour CEO and France's AMF watchdog

* Carrefour has no immediate comment on Deminor

* Casino refuses to cede control of Pao de Acucar -report

(Adds details from Deminor letter, DIA, Brazil)

By Dominique Vidalon and Julien Ponthus

PARIS, July 5 (Reuters) - French retailer Carrefour said it had no plans for a hostile bid for rival Casino's Brazil operations, despite pushing on with merger plans in the face of claims its swoop on the business was illegal.

Carrefour, which drew criticism from shareholder rights group Deminor for not keeping the market informed over Brazil, is fighting Casino for a bigger share of the fast-growing Brazilian market as the two companies' European sales stagnate.

On Monday, Carrefour's board approved a plan to merge Carrefour's Brazilian assets with those of Brazil's Grupo de Acucar (GPA), in which Casino is the controlling shareholder.

The move prompted Casino to warn Carrefour that the merger could not go ahead without its consent.

Casino chairman Jean-Charles Naouri met on Monday with Luciano Coutinho, president of Brazil's state development bank BNDES, which is to provide financial backing for the deal. Naouri told Coutinho that he would defend Casino's right to boost its stake in Pao de Acucar through an option next June, the O Estado de S. Paulo newspaper reported, citing sources with knowledge of the situation.

Casino also made a second request for arbitration at the International Chamber of Commerce against the current GPA chairman, Brazilian tycoon Abilio Diniz, for negotiating with Carrefour without informing it.

"Carrefour has no hostile intentions regarding Casino," Carrefour said in a statement on Tuesday, adding that the proposal was submitted to both Carrefour and CBD (Grupo Pao de Acucar) at the same time and was subject to CBD's approval.

Carrefour also said in the same statement that talks between Carrefour and Diniz had been legal.

"Publicly available agreements between Casino and the Diniz Group relating to CBD (GPA) and its controlling shareholder Wilkes do not contain, to our knowledge, any provision prohibiting discussions or negotiations, and to date Casino has not referred to any specific clause to support its assertions," it said.

Casino and Diniz each own 50 percent of the voting rights of holding company Wilkes, which in turn controls 66 percent of the voting rights of Grupo Pao de Acucar.

Wilkes shareholders are due to meet on Aug. 2 to discuss the proposed tie-up.

Carrefour could face further pressure over Brazil.

European shareholder rights group Deminor sent a letter to Carrefour Chief Executive Lars Olofsson and France's AMF stockmarket watchdog on July 4 to complain that Carrefour had failed to inform financial markets and Carrefour shareholders at its June 21 annual meeting that it was in talks with the Diniz group about Brazil.

Reuters obtained a copy of the letter, which could eventually lead to a probe by the AMF.

The AMF was not immediately available for comment. Carrefour had no immediate comment on Deminor.

Weakened by three profit warnings since autumn and under pressure from key shareholders French luxury tycoon Bernard Arnault and U.S. real estate investor Colony, Carrefour has been looking at ways to boost its share price.

To that end Carrefour on Tuesday listed its Spanish discount chain Dia in a 2.3 billion-euro ($3.3 billion) spin-off aimed at leaving the retail giant free to revamp its French business amid poor European sales. (Reporting by Dominique Vidalon; Editing by James Regan and Will Waterman)