UPDATE 1-Peugeot hits new profit record as pricing prevails

(Adds CFO comment, detail, background)

PARIS, July 26 (Reuters) - PSA Group increased sales and profit in the first half, the maker of Peugeots and Citroens said, beating analyst expectations with a new profitability record at its core manufacturing division.

Net income rose 3.6 percent to 1.26 billion euros ($1.46 billion) on a 5 percent increase in revenue to 29.17 billion, the French carmaker said on Wednesday, as stronger pricing more than made up for weaker sales volumes in Europe and China.

PSA rebounded from near-bankruptcy and a government-backed bailout in 2014 to an industry-leading automotive profit margin last year on the strength of cost-cutting, a pared-down lineup and determined efforts to lift prices.

The core automotive operating margin jumped from 6.8 percent to 7.3 percent, setting a "new historic high" for the Paris-based carmaker, Chief Financial Officer Jean-Baptiste de Chatillon said on a conference call with reporters.

"We are now in position to deliver recurrent profitability," Chatillon said. "There are always headwinds, but we're able to withstand them while maintaining a high level of profitability."

Weaker first-half vehicle sales in Europe and a sharper slowdown in China had sparked concerns about the pace of PSA's recovery just as it prepares to acquire Opel from General Motors , in a deal closing later this year.

But the earnings numbers squarely beat analyst expectations of 28.92 billion euros in revenue, 1.3 billion in automotive profit and a 1.06 billion-euro net income, based on the median of nine estimates polled for Reuters.

PSA said its market-share decline - particularly in Europe - wiped 92 million euros from profit. Higher raw-material costs trimmed a further 129 million and currency effects 255 million.

But its product mix added 456 million euros and pricing another 41 million - both helped by a flurry of new model launches. Market growth also contributed 178 million euros.

PSA raised its full-year European auto-market growth forecast to 3 percent from 1 percent and its Latin American and Russian growth forecasts to 5 percent - from 2 percent and flat, respectively.

($1 = 0.8590 euros) (Reporting by Laurence Frost and Gilles Guillaume; Editing by Sudip Kar-Gupta)