J Sainsbury beat Christmas sales forecasts as store extensions and its expansion into convenience outlets, online shopping and non-food ranges helped it take market share in a tough trading environment.

Britain's third-biggest supermarket group behind Wal-Mart's Asda and industry leader Tesco said on Wednesday sales at stores open over a year rose 2.1 percent, excluding fuel, in the 14 weeks ended January 7.

Stripping out VAT sales tax, the increase was around 1.2 percent, which compares with a forecast rise of 0.9 percent in a Reuters poll of 17 analysts and is also modestly ahead of its performance in the previous quarter.

Analysts believe Sainsbury's had the strongest December of Britain's top four grocers based on market research data from Kantar Worldpanel published on Tuesday.

No.4 chain Wm Morrison on Monday posted a 0.7 percent rise in sales excluding fuel and VAT for the six weeks to January 1, while Tesco is tipped to report a drop in underlying British sales on Thursday.

Sainsbury's figures add to signs that Britons treated themselves over Christmas despite a squeeze on disposable incomes from higher prices, muted wages growth and austerity measures, as well as worries about the euro zone debt crisis.

However, the British Retail Consortium warned on Tuesday sales were flattered by weak figures the year before, when trading was hit by heavy snow, and shoppers were lured by discounts that could hit retailers' profits.

Sainsbury's joined rivals in predicting the first few months of 2012 would be difficult as shoppers pay off their Christmas bills, but was hopeful events such as the Olympic Games in London and the Queen's Diamond Jubilee would boost summer trade.

Retailers are also optimistic a fall in inflation will help to encourage spending.

Sainsbury's said its non-food sales grew faster than grocery sales, helped by a clothing range backed by celebrity fashion consultant Gok Wan. Convenience store sales jumped almost 25 percent, while online grocery sales climbed almost 20 percent.

Home shopping firm N Brown also reported a rise in Christmas sales on Wednesday, though it added profit margins fell due to a step-up in promotions.

Baker Greggs highlighted the importance of promotions as well, as it delivered a jump in Christmas sales, while fashion retailer SuperGroup said it had a good festive season too.

(Reporting by Mark Potter; Editing by Will Waterman and Erica Billingham)