* Carrefour Q1 sales 20.8 bln eur vs Rtrs poll avg 20.9 bln
* Carrefour French hyper l-f-l sales down 2.9 pct vs -3 pct expected
* Casino French hyper l-f-l sales down 11.5 pct vs -10 pct expected
By Dominique Vidalon
PARIS, April 18 (Reuters) - Carrefour, Europe's biggest retailer, sees little sign of economic improvement in the austerity-stricken continent after falling demand in Spain and Italy and weakening trade in its core French market held back first-quarter sales.
Trends were more positive elsewhere, however, with Brazil, Carrefour's largest market after France, continuing to show robust growth, and an improving performance in China.
Analyst forecasts for a rise in full-year operating income to 2.2 billion euros ($2.87 billion) from 2.14 billion last year were therefore "reasonable," the retailer said on Thursday.
Consumer groups across Europe are struggling as shoppers' disposable incomes are squeezed by rising prices, subdued wage growth and austerity measures.
Smaller domestic peer Casino reported after the market closed on Thursday a drop in its core French market, including a worse-than-expected 11.5 percent fall in sales at its Geant hypermarkets, as it has yet to benefit from recent price cuts.
Casino, which controls Brazil's top retailer Grupo Pao de Acucar, however offset French weakness due to robust growth in Latin America and Asia, and it said it still aimed to increase sales and operating profit this year.
British grocer Tesco on Wednesday reported slower UK sales growth since Christmas, while Swiss food group Nestle and German car parts supplier Bosch both highlighted weak European markets on Thursday.
"In Q2, we do not expect a significant change in the economic environment," finance chief Pierre-Jean Sivignon told analysts, noting "persisting challenging" conditions in Europe.
Carrefour, the world's largest retailer after Wal-Mart , has been struggling for years in Europe, partly due to a reliance on hypermarkets, which have been losing out as time-pressed shoppers buy more goods locally and online and prefer to buy general merchandise from specialists.
The French group said it made first-quarter sales of 20.8 billion euros, just below the average forecast of 20.9 billion in a Reuters poll of analysts.
Stripping out fuel and currency effects, revenue rose 0.2 percent, slowing from 0.4 percent in the fourth quarter of 2012.
"Carrefour Q1 results remain weak, lifted once again by Latin America and especially Brazil, but hampered by Western Europe, which still represents three-quarters of the retailer's sales," PlanetRetail analyst Gildas Aitamer said.
"Nonetheless, we believe Carrefour is moving in the right direction in the economically challenged southern European markets thanks to an increased discount offering."
Carrefour shares closed down 1.07 percent at 20.40 euros, underperforming a 0.57 percent decline in the European retail sector and a 0.07 percent rise in Casino shares.
They trade at 14.4 times estimated 2013 earnings, against 14.9 times for Casino and 11.5 times for Tesco.
The stock is up 63 percent since bottoming out last July, and up 7 percent this year, a boost for top stakeholder Blue Capital, controlled by LVMH head Bernard Arnault, and U.S. investment fund Colony Capital.
WEAK FRENCH HYPERMARKETS
France, which contributes more than 40 percent of group sales, is key for investors to assess whether Carrefour can finally come to grips with its problems in Europe.
Under his recovery plan, Georges Plassat, who became Carrefour CEO in May 2012, has vowed to cut costs, improve price competitiveness and simplify product offerings, notably in the troubled non-food sector, and last month unveiled plans to boost capital expenditure.
There were few signs of improvement in France, however, where revenue eased 1.4 percent after a 0.8 percent decline in the fourth quarter, also hit by a negative calendar effect and cold weather.
Closely watched same-store sales at Carrefour's French hypermarkets fell 2.9 percent after a 2 percent decline in the fourth quarter. That was in line with market expectations.
Sivignon flagged a good performance in food sales at French hypermarkets, adding Carrefour was seeing a "progressive" improvement in price perception against its rivals and a "steady improvement" in the store traffic trend.
In emerging markets, Brazil remained a bright spot, showing double-digit like-for-like sales growth, with both food and non-food showing improvements in hypermarkets.
In China, sales related to the Chinese New Year were in line with Carrefour's expectations and the trend in food sales slightly improved in the quarter, Sivignon said, until a recent health scare in the past month over bird flu.