UPDATE 2-Carrefour closer to Brazil listing with Diniz deal

(corrects valuation of Brazil business in paragraph 8)

* Abilio Diniz buys 10 pct stake in Carrefour Brazil

* Diniz pays about 1.8 billion reais ($663 million)

* Also has option to raise stake to max 16 pct

* Brazilian business could be listed in future

* Carrefour (Paris: FR0000120172 - news) raises cash for Brazil expansion, Diniz back in retail

By Dominique Vidalon and Andrew Callus

PARIS, Dec 18 (Reuters) - Carrefour has sold a 10 percent stake in its Brazilian business to billionaire Abilio Diniz, in a first step towards a possible separate listing, as Europe's largest retailer looks to raise cash to accelerate growth in its second-largest market.

With its core French market on the mend, Carrefour head Georges Plassat has long said he wanted to speed up expansion in fast-growing Brazil and China, and that a flotation in Brazil was one of its funding options.

If Carrefour goes ahead with a Brazilian listing, it would be joining a trend among big Western retailers to sell or list parts of their more profitable emerging market businesses.

Germany's Metro (Other OTC: MTRAF - news) for instance was planning to list its Russian cash-and-carry business but had to shelve the plan due to the Ukraine crisis, while Britain's Tesco (Xetra: 852647 - news) spun off its China operations this year into a separate joint venture.

Diniz's investment company Peninsula bought a 10 percent stake for about 1.8 billion reais ($663 million), the France-based retailer said in a statement on Thursday, confirming what a source with knowledge of the situation had said on Wednesday.

Peninsula also has the option to raise its stake to a maximum 16 percent within five years.

Carrefour said the deal could in future allow a listing on the Brazilian stock exchange.

Analysts had estimated the Brazilian business to be worth up to 9 billion euros, whereas the deal valued the company at around 6 billion euros.

Analyst Antoine Parison at investment bank Bryan Garnier said the value was disappointing, though a partnership with Diniz was probably one of the best that could be hoped for, given his knowledge of the market and experience as former chairman of Carrefour's main competitor in Brazil.

By 0955 GMT, Carrefour shares were up 1.6 percent, in line with the European retail sector.

The deal marks 77-year-old Diniz's return to retailing and closer ties with the Carrefour group, in which he has built a stake of a little under 3 percent, according to sources.

The eldest son of the founder of GPA SA, Carrefour's Brazilian arch rival owned by French retailer Casino , Diniz left GPA in September last year to turn around foods maker BRF SA.

In 2011, Diniz fell out with Casino after he secretly sought to broker a merger with Carrefour. The deal ultimately fell through.

Carrefour has a 40-year history in Brazil with 256 stores ranging from hypermarkets to Carrefour Express stores. It had 34 billion reais of sales there in 2013, about an eighth of its total group revenue. ($1 = 2.7145 Brazilian reais) (Additional reporting by Guillermo Parra-Bernal and Alexandre Boksenbaum-Granier; Editing by Leigh Thomas, David Holmes and David Evans)