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UPDATE 2-French supermarket operator Carrefour raises cost savings goal

Dominique Vidalon

* Operating profit 1.938 bln euros, vs 1.930 bln guidance

* 2018 cost cuts 1.050 bln euros, raises 2020 target

* Free cash flow 1.088 bln euros vs 950 mln in 2017

* Shares up 1.7 pct in early trade (Adds share reaction, analyst comment, details)

PARIS, Feb 28 (Reuters) - France's Carrefour raised its savings goal and said it would step up plans to downsize its hypermarket stores, as Europe's largest retailer delivered cost cuts of 1.05 billion euros ($1.2 billion) in 2018 and a higher free cash flow.

It posted a well-flagged 3.4 percent decline in 2018 operating profit, reflecting weakness in its domestic market that offset a better performance in Brazil, which is its second-biggest market behind France.

Carrefour shares were up 1.7 percent at 0853 GMT, however, as analysts welcomed its general plans to cut costs.

"Cost savings are progressing well but not enough to reinvigorate (the company's business in) France yet," said Bruno Monteyne, an analyst at brokerage Bernstein.

Carrefour launched a five-year plan a year ago to cut costs, boost E-commerce investment and seek a partnership in China with tech giant Tencent.

It aims to boost profits and sales and tackle growing competition from U.S. online retail giant Amazon

"For Carrefour, 2019 will be a year in which we will deepen the initiatives of the 2022 plan, to better serve our customers...Our encouraging results now allow us to revise upwards a number of 2022 targets," CEO Alexandre Bompard said.

The plan includes expanding into convenience stores to reduce exposure to large hypermarket stores and having a greater focus on organic products and private labels.

Carrefour recently sealed a purchasing alliance with Britain's Tesco which is expected to start bearing fruit this year..

Carrefour kept its annual dividend unchanged at 0.46 euros and said it now eyed cost savings of 2.8 billion euros by 2020 instead of the 2 billion previously targeted.

Free cash flow, excluding exceptional items, rose to 1.088 billion euros in 2018 from 950 million euros in 2017 as capital expenditures were limited to 1.611 billion euros.

It reported a 2018 recurring operating profit of 1.938 billion euros, in line with its guidance of 1.930 billion provided in January.

In France, where CEO Bompard has made reviving flagging sales at hypermarket stores a priority, operating profits 43.3 percent to 466 million euros, with the margin falling to 1.3 percent against 1.9 percent in 2017.

In France, Carrefour faces competition from the likes of Amazon and pressure from cheaper prices offered at rivals such as Leclerc.

The group's Chinese operations remained loss-making last year amid competition from local players and a buoyant online market but Carrefour said its general performance in China nevertheless improved.

Finance chief Matthieu Malige said talks were continuing about a potential deal in which Tencent and local retailer Yonghui would take a stake in Carrefour China.

($1 = 0.8793 euros) (Reporting by Dominique Vidalon; editing by Sudip Kar-Gupta and Jason Neely)