* SocGen latest bank to announce cost-savings plan
* Q1 results overall better than expected -analysts
* Domestic loan-loss provisions rise at both banks
* Investment banking, asset sales among bright spots
By Lionel Laurent and Christian Plumb
PARIS, May 7 (Reuters) - French banks Societe Generale and Credit Agricole vowed on Tuesday to keep cutting costs after asset sales and lending cutbacks helped to offset a weak domestic economy in the first quarter.
Banks across Europe are moving to slash spending and cut jobs in the face of tougher rules about capital levels and the uneven post-crisis economic recovery.
SocGen, France's No. 2 listed bank, said it would cut 900 million euros ($1.18 billion) in costs over the next three years in order to reach a new return-on-equity (ROE) target of 10 percent, an increase of 2.6 points.
Smaller listed rival Credit Agricole, which is more exposed to the French economy via its parent network of regional retail banks, reiterated its bid to cut 650 million euros by 2016.
While both banks suffered from shrinking group revenues, rising French loan losses and market jitters over Cyprus and Italy in the quarter, they also cut overall expenses and booked gains from selling business units in a bid to shore up solvency.
SocGen shares rose more than 4 percent. Credit Agricole gained more than 1 percent in early trade before flattening out, while the STOXX Europe 600 index rose 1.2 percent.
"What is impressive is SocGen's capacity to cut its cost base," said Yohan Salleron, fund manager at Mandarine Gestion. "The target they announced is pretty significant."
SocGen is in talks with unions to cut 620 staff at its central back-office operations, Chief Financial Officer Philippe Heim told journalists. Reuters exclusively reported last month that the bank was considering between 600 and 700 job cuts.
Larger domestic rival BNP Paribas, Germany's Deutsche Bank and Switzerland's UBS have also announced cost-saving plans to help fight the rising cost of doing business and the worsening economic outlook.
BNP leads the pack in terms of balance-sheet strength with a core Tier 1 capital ratio of 10 percent under tougher Basel III rules at end-March. Deutsche Bank has raised capital to reach 9.5 percent. SocGen expects to be at 9.5 percent by end-2013.
Credit Agricole's fell to 8.5 percent from 9.2 percent as a result of interim regulation pending Basel III, which forces banks to count insurance exposure as equivalent to equity.
On Tuesday SocGen reported a 50 percent drop in first-quarter net income to 364 million euros, hit by own-debt losses, a litigation provision of 100 million euros and a rise in French loan-loss provisions.
Several analysts said the results were better than expected, with investment-banking profits up 40.7 percent in the quarter - helped by a drop in costs and an increase in financing revenues - and with the group's overall expenses down 6 percent.
"SocGen looks good, not just on the results but this cost savings plan is positive as well," Espirito Santo banks analyst Andrew Lim said.
Credit Agricole, France's No. 3 bank by market value, posted a 51 percent gain in quarterly profit thanks to a favorable comparison with a year-ago period weighed down by charges related to Greece.
"The results are better than expected because expenses and loan provisions were kept under control," CM-CIC analyst Pierre Chedeville wrote in a note.
The lender has said it will unveil a new plan this autumn. It is aiming to cut 650 million euros in costs by 2016 through savings on back-office technology, equipment and real estate.