UPDATE 1-VW eyes flat 2013 profit as crisis kicks in

* 2012 oper. profit hits new record at 11.5 bln euros

* VW cautions on 2013 outlook amid "ongoing uncertainty"

* VW bracing for "increasingly stiff competition"

(Adds background, quote from VW)

BERLIN, Feb 22 (Reuters) - Volkswagen's pursuit of record profits may suffer a setback this year as Europe's biggest carmaker becomes more cautious on its business outlook amid declining European auto markets.

The German company said on Friday its goal for 2013 was to match the record 11.5 billion euro ($15.21 billion) operating profit achieved last year.

The group warned of "ongoing uncertainty in the economic environment" and shares dropped 5.2 percent at 1444 GMT.

Germany's benchmark index DAX slipped 0.8 percent, partly because of disappointment over VW's planned dividend of 3.56 euros per preference share, short of the 3.85 euros expected on average in a Reuters poll.

Record sales of 9.1 million vehicles last year on overseas demand outweighed costs of an engineering revamp, helping VW to beat its own target for 2012 of merely matching 2011 profit.

Yet, after resisting most of last year's European slump, VW is growing more vulnerable to the crisis in its core market. Sales of VW's main namesake brand, accounting for almost a third of group profit, plunged 12.3 percent in the region excluding Germany in January.

"While we shall see positive effects from our attractive model range and strong market position, there will also be increasingly stiff competition in a challenging market environment," VW said. ($1 = 0.7563 euros)

(Reporting by Andreas Cremer; Editing by Helen Massy-Beresford)