(Adds analyst paragraph 13, exchange rate impact paragraph 10)
By Rebecca Harrison
PARIS, April 25 (Reuters) - A clutch of funky new models at France's Renault failed to offset slack European demand as first-quarter sales at the carmaker slid 2.9 percent.
But the sales drop announced on Friday was less than feared, shielding the carmaker's stock from sector blues.
Renault also cheered investors on Friday with news its Japanese partner Nissan would contribute around 750 million euros to its first-half results.
Europe's fourth-largest auto firm holds a 44.4 percent stake in Nissan, which crowned a radical revamp with figures showing a 51 percent rise in operating profit in its just-ended business year this week, and the two have forged industrial tie-ups.
Renault stock rose 1.23 percent to 36.95 euros by 1022 GMT. It has lagged its sector by some 16 percent this year as investors fret it could fail to kickstart profits in a year when it should be nearing the zenith of its model cycle.
The European DJ Stoxx Autos index fell 2.87 percent after glum figures on Thursday from German carmakers revived fears global car demand may still have some way to fall.
Renault said sales in the first three months of the year fell to 9.015 billion euros ($9.92 billion) from 9.285 billion a year ago.
Sales at Renault's core carmaking unit slipped 3.22 percent to 8.545 billion euros as a strong euro bit into revenues, while global unit sales fell seven percent like-for-like due to falling demand in western Europe.
MEGANE SALES STURDY
"The decline was primarily due to falling sales volumes in western Europe and the negative impact of the depreciation of the pound sterling, the Brazilian real and the Argentine peso," the company said in a statement.
Stripping out the impact of exchange rate fluctuations, sales in the car division slipped 0.4 percent.
Renault is banking on its new Megane models and its spinoffs to revive profits, which have sagged in recent years as rivals launched flash new cars that left its own line up looking dowdy.
Renault said sales had suffered because it had not finished rolling out its new Megane range, including the new version of its popular Scenic minivan, which has divided motorists with its love-it-or-hate-it cutaway back ends.
Recent European new car sale figures have shown that sales of the Megane are sturdy, but falling demand for Renault's older models yanked down overall unit sales.
"If you take the view that the Megane renewal is going to lift overall volumes this year then it clearly isnt working," said one London-based analyst.
PSA Peugeot Citroen also added competitive pressure with its hit Citroen models and on Thursday Europe's second biggest carmaker bucked sagging European demand by reporting a three percent rise in first quarter sales.
Despite upbeat sales, shares in PSA dipped 2.6 percent in line with a weaker sector and after Merrill Lynch trimmed its price target on valuation grounds.
"The Clio and Laguna suffered a bit with the market slowdown and with tough competition at Citroen, autos analyst at BNP Paribas in Paris.
Elsewhere in the car industry the picture has been glum.
Industry giant DaimlerChrysler warned on Thursday group revenues would fall in 2003 despite forecast-topping first-quarter operating profit, while Europe's biggest carmaker Volkswagen bracing shareholders for a large drop in first quarter profit.
On a consistent accounting basis Renault sales fell 2.86 percent, the firm said in a statement.