Carrefour , Europe's top retailer, slashed its dividend and halted investment plans in anticipation of another tough year at home in France and in austerity-hit southern Europe.

The world's second-biggest retailer behind Wal-Mart Stores Inc halved its dividend on Thursday to preserve cash and put its plan to revive its European hypermarkets on hold.

Carrefour, posting a 19 percent drop in 2011 profit in its final results before boss Lars Olofsson steps down, said it was halting conversions of its new Carrefour Planet hypermarket format beyond 2012 because the new format had so far fallen short of expectations.

This will allow the group to focus on a more immediate plan to lower prices to lure back shoppers who cut back on purchases of discretionary non-food items in France, Greece, Spain and Italy. It will also accelerate its expansion in e-commerce.

In 2012, we will capitalise on our strengths while exercising strict cost and cash discipline to adjust to the environment in which we are operating, Chairman and Chief Executive Olofsson said.

A collapse in household spending, exports and manufacturing sucked the life out of the euro zone's economy in the final months of 2011, the European Commission said on Tuesday, showing the scope of the downturn that looks set to become a fully fledged recession.

France, which holds presidential elections in April, is set for flat economic growth in the first three months of the year after expanding 0.2 percent in the final quarter of 2011, The Bank of France said on Thursday.

Carrefour's downsizing plans came after Tesco Plc , the world's third-biggest retailer, said in January it would cut back openings of big hypermarkets and focus on faster-growing smaller stores and the Internet.

Carrefour, which under Olofsson has failed to reverse years of underperformance in its main European markets, made an operating profit of 2.18 billion euros (1.8 billion pounds) in 2011.

The performance was in line with analysts' expectations and the company's guidance, and underscored the magnitude of the task facing incoming Chief Executive Georges Plassat.

2012 looks like being another very tough year with capex cut to the bone. Key will be what Mr Plassat ... decides to do when he arrives in April, Bank of America Merrill Lynch said in a note.

Carrefour is heavily exposed to some of Europe's weakest markets - such as debt-laden Spain, Italy and Greece - where shoppers have been cutting back on non-food items.

In Italy, the group incurred hefty impairment charges, which were largely responsible for non-recurring items of 2.67 billion euros, which cut net profit by 14.3 percent.

Among other retailers, Belgian supermarket group Delhaize posted lower-than-expected fourth quarter operating profit as it struggled to pass on food inflation costs to cash-strapped consumers, while WM Morrison Supermarkets said it expected 2012 to be a challenging year but was well positioned to deliver profitable growth.

BACK TO SQUARE ONE

With free cash flow sinking to 77 million euros from 839 million in 2010, Carrefour halved its dividend to 0.52 euros, which was lower than the 0.72 euros expected by analysts.

By 1245 GMT, Carrefour shares were off 0.8 percent at 17.48 euros, underprforming their European sector <.SXRP>.

The Arnault-Colony alliance, known as Blue Capital, owns about 16 percent of Carrefour. It is sitting on hefty paper losses from the investment, which originated with a 2007 stake purchase at over 40 euros per share.

Carrefour said it would cut capital spending to 1.6-1.7 billion euros this year from 2.3 billion in 2011, with the bulk of the reduction coming from Europe as Carrefour will scale down to 11 the conversions of its hypermarkets into Planet stores.

We have no intention of slowing down expansion in Brazil, China or Indonesia, Olofsson told a news conference, stressing emerging markets remained key growth drivers.

Espirito Santo analysts said in a note: These cuts show Carrefour moving into cash conservation mode and would seem to indicate that management doesn't see an improvement in the outlook for trading in the near-term.

Chief Financial Officer Pierre-Jean Sivignon said Carrefour would update investors on trading conditions on April 12 when it unveils its first-quarter sales.

Carrefour spent 400 million euros to convert 81 hypermarkets to its Planet concept in 2011. The stores represented 10 percent of sales. In August, the group had said it planned to have converted 221 stores to Planet and renovated another 243 hypermarkets by end 2013.

Carrefour has been struggling for years, partly due to its reliance on hypermarkets, which have been losing out as time-pressed shoppers buy more goods locally and online and prefer to purchase general merchandise from specialist stores.

Planet was meant to be the solution to Carrefour's woes in Europe. Confirmation that this is not the case means that we are back to square one, again, Espirito Santo analysts said. We now await a strategy update from ... Plassat, but this is unlikely to be forthcoming until the second half of the year.

Retail veteran Plassat will take on his full role only from the June 18 annual shareholders' meeting.

Olofsson's three-year tenure has been marred by a string of poor trading results, management defections and strategic U-turns, including a failed merger in Brazil, which hammered the stock by

(Editing by James Regan and David Holmes)