UPDATE 1-Duty free, cosmetics lift luxury group LVMH's sales

* Fashion and leather comparable sales rise 5 pct in 2013

* LVMH proposes 7 pct increase in 2013 dividend

PARIS, Jan 30 (Reuters) - LVMH, the world's biggest luxury group, posted an 8 percent rise in like-for-like full-year sales on Thursday as buoyant duty-free and cosmetics revenue helped offset lower demand for cognac in China and Louis Vuitton handbags.

The group, which owns Hennessy cognac and fashion brand Dior, said comparable sales from fashion and leather, its biggest division, rose 5 percent in 2013, while combined revenue from travel retail and its Sephora unit rose 17 percent.

LVMH also proposed raising its dividend by 7 percent to 3.10 euros a share for the year after enjoying a 20 percent rise in free cash flow to 3 billion euros ($4.1 billion).

In the fourth quarter, organic revenue rose 8 percent, in line with the previous three months, while fashion and leather sales growth accelerated to 7 percent from 3 percent in the third quarter, beating analyst expectations of 4-5 percent.

Full-year profit from recurring operations at the group's fashion and leather business fell 4 percent to 3.14 billion euros, but Chief Executive Bernard Arnault said the profitability of Louis Vuitton had remained unchanged.

LVMH Finance Director Jean-Jacques Guiony said the drop was mainly due to investments in the division's retail network and in the image of its brands, which include Celine, Fendi and Kenzo.

LVMH's annual sales reached 29.15 billion euros, roughly in line with forecasts, while profit from recurring operations rose 2 percent to 6.02 billion, compared with a 13 percent rise the previous year.

The group's current operating margin remained at 21 percent.

Italian luxury leather group Tod's released disappointing figures on Wednesday, which fuelled concerns about the sales growth of other major luxury brands such as Kering's Gucci and LVMH's Louis Vuitton.

Many analysts say consumer demand for logo-embossed luxury products has waned in the past few years while appetite for more exclusive niche brands has grown.