* BMW Q2 EBIT 2.6 bln eur vs 2.23 bln forecast in poll
* Sales of BMW branded cars up 8.3 pct
* BMW Q2 automotive EBIT margin at 11.7 pct (Adds CEO comments on cost cuts, China, pricing in Europe)
FRANKFURT, Aug 5 (Reuters) - New models and strong sales in China helped BMW AG to beat second-quarter profit forecasts and keep it on track to remain the world's biggest luxury carmaker under the challenge of its German rivals.
Sales by the core BMW brand rose 8.3 percent to 458,000 vehicles, a record high, as new models such as the 4-series coupe and 2-series compact helped the group to tap stronger demand in China and Europe.
Earnings before interest and tax (EBIT) jumped 26 percent to 2.6 billion euros ($3.5 billion), the company said on Tuesday, topping a forecast of 2.23 billion in a Reuters poll of analysts.
"This is a major beat and we remain convinced that the street is underestimating BMW's medium- and long-term earnings power," London-based ISI Group analysts said in a note.
BMW shares climbed almost 3 percent higher in early trade but were almost flat at 1455 GMT, in line with Germany's blue-chip DAX index.
Luxury carmakers weathered a six-year sales slump in Europe thanks in part to strong demand from emerging markets. But signs of a slowdown in some of those countries and a still fragile recovery in Europe has raised concerns about future demand.
BMW cautioned on Tuesday that the crisis in Russia was starting to make itself felt. After showing little change in the first six months, regional sales fell more than 11 percent in July, Chief Executive Norbert Reithofer said.
BMW's quarterly automotive EBIT margin, the best profitability gauge for peer comparison, came in at 11.7 percent, exceeding the 7.9 percent achieved by Mercedes-Benz, and 9.9 percent by Audi, as well as its own 8-10 percent target range.
BMW has quietly repositioned some of its best-selling models upmarket. The coupe and convertible version of its 3-series have been discontinued and replaced with vehicles badged as a 4-series, commanding higher list prices.
BMW has also expanded and renewed its range of luxury offroaders. Sales of the new X5, which hit showrooms in late 2013, rose 29.7 percent in the first half, the company said.
The sale of more luxurious models will help offset lower margins from BMW's growing range of smaller cars such as the 2-series and new versions of the Mini, which are expected to account for more than 40 percent of the group's overall vehicle sales in three years time, up from 25-30 percent currently, CEO Reithofer said.
Investments to expand its China operations and to launch new models and technology to cut carbon dioxide emissions, will lower the profit margin on its autos division in the rest of the year while remaining within the target range, Chief Financial Officer Friedrich Eichiner said.
In response, BMW is reining in development costs by cooperating with rivals. The group will continue pooling some component purchasing with Daimler, and a decision on whether to build a sportscar with Toyota is expected to be made this year, Reithofer added.
"It is vital to contain rising costs, not to cut. We are not talking about to cut costs," Reithofer said.
BMW also said it was in a regular dialogue with Chinese antitrust authorities as the country's National Development and Reform Commission (NDRC) launched a probe against rival Mercedes-Benz.
BMW said it was in discussions with the NDRC. "So far there is no additional information about where this development will lead to and we will see," Eichiner told analysts on a call to discuss earnings.
Munich-based BMW reiterated it is targeting a significant sales increase to 2 million vehicles or more this year, after delivering a record 1.96 million Mini, Rolls Royce and BMW cars in 2013.
The company also reiterated its goal to raise pretax profit by up to 10 percent.
BMW faces strong competition from arch rivals Audi, part of the Volkswagen group and Mercedes-Benz, owned by Daimler.
Cutthroat competition between the German premium auto makers has prevented price levels in Europe from recovering to pre-financial crisis levels, Eichiner said.
Last year, BMW led the global premium race with 1.65 million cars sold by the namesake brand, topping Audi's 1.57 million and third-placed Mercedes with 1.47 million.
($1 = 0.7450 Euros) (Editing by Laurence Frost and Mark Potter)