* Net income down 15 percent to 1.77 billion euros
* Revenue down 3.2 percent to 41.27 bln euros
* Operational cash flow 597 million euros
* CEO Ghosn takes temporary pay cut
* Shares rise 5.5 pct (Adds model launches, CEO comment, shares, details)
By Laurence Frost
PARIS, Feb 14 (Reuters) - French carmaker Renault predicted an upturn in global sales will restore its manufacturing division to profit this year, as overseas growth outweighs Europe's slump.
The maker of Clio subcompacts and no-frills Dacia vehicles said new models would revive its European market share, after yearly group profit fell 15 percent amid shrinking regional demand.
Despite the net income decline to 1.77 billion euros ($2.4 billion) on a 3.2 percent revenue slide to 41.27 billion, operational cash flow came in at 597 million euros, lifting Renault's shares.
"(That) can only be described as magic when we see a car company facing falling sales," Credit Suisse analyst David Arnold said in a note.
The stock was up 5.5 percent at 45.56 euros as of 0949 GMT, extending its 12-month gain to 19 percent - compared with a 9 percent advance for the broader STOXX Europe 600 autos & parts index.
While the group's namesake brand has suffered badly in Europe, Renault's earnings are cushioned by income from its 43.4 percent stake in Japan's Nissan and resilient sales of its low-cost cars in emerging markets such as Russia.
The carmaker's performance and outlook contrasted sharply with French rival PSA Peugeot Citroen, which on Wednesday unveiled a 5 billion euro loss bloated by writedowns and a 1.5 billion deficit for its auto division.
Chief Executive Carlos Ghosn told reporters a recently updated Clio and upcoming mini crossover, Captur, will boost sales and profit for the Renault brand. The marque's share of European car sales dropped 1.2 point to 6.5 percent last year.
Renault also expects new models to improve its brand position, halving the price gap with Volkswagen AG, finance chief Dominique Thormann added.
The company targeted positive automotive operating profit in 2013 after a 25 million euro loss in 2012, excluding one-time gains and charges. Group operating profit fell one-third to 729 million euros, for a 1.8 percent margin.
Cash flow will remain positive after last year's 45 percent decline, it said. The company also sees an upturn in global sales, which fell 6.3 percent to 2.55 million vehicles in 2012.
Renault nonetheless cautioned that a worse-than-expected auto market in Europe or elsewhere could scupper its upbeat forecasts.
"The big joker here is the European market," Ghosn said, predicting a further 3 percent contraction in the region, where sales hit a 17-year low in 2012. Peugeot expects vehicle demand to fall by between 3 and 5 percent.
Ghosn will temporarily forego part of his bonus this year, Renault said, as the company cuts jobs and seeks union concessions in a new nationwide labour deal.
Ghosn's pay, which came to 2.8 million euros last year in addition to his salary as Nissan CEO, has drawn criticism from the French government, Renault's biggest shareholder with a 15 percent stake, as the company pushes through 8,200 job cuts.
Renault is also asking unions to sign up for a pay freeze, longer working hours and increased flexibility in return for commitments to increase production and avoid factory closures.
Payment of 30 percent of Ghosn's bonus, or some 480,000 euros, will be postponed until 2016 and conditional upon meeting the production commitments, the company said. "It was the very least he could do," said Industry Minister Arnaud Montebourg.
Renault said it would pay an increased dividend of 1.72 euros compared with last year's 1.16 euros, largely reflecting income from its Nissan holding and a stake in Volvo sold in December for 1.48 billion euros.
The Volvo disposal enabled the French carmaker to eliminate net debt and report the auto division's first positive cash position since 1999.
Renault's 10 billion euro cash pile puts it in a healthier position than some European peers, barring the likes of BMW , Volkswagen and Daimler, analyst Max Warburton at brokerage Bernstein said.
"Renault has had the strongest finances of the three non-German (carmakers) for some time," Warburton said in a note. "But its balance sheet is now vastly superior." ($1 = 0.7442 euros) (Additional reporting by Gilles Guillaume and Alexandre Boksenbaum-Granier; Editing by Mark John and David Holmes)