* Q1 core profit $3.46 bln vs Reuters poll average $3.73 bln
* Beer volumes down 1.7 pct, fall of 10 pct in Brazil
* Recession, early Carnival behind Brazil weakness
* AB InBev retains forecast, sees SABMiller takeover closing in H2 (Adds shares, analyst comment)
By Philip Blenkinsop
BRUSSELS, May 4 (Reuters) - Anheuser-Busch InBev, set to increase its global beer leadership by buying SABMiller , reported lower than expected earnings in the first three months after it sold 10 percent less beer in its second largest market, Brazil.
AB InBev shares fell as much as 4.6 percent to a seven-week low of 103.20 euros, making them among the weakest performers in the FTSEurofirst 300 index of leading European stocks.
The brewer of Budweiser, Stella Artois and Corona had warned in February that it was likely to have a weak start to the year in Latin America's biggest economy.
Brazil, where AB InBev has two-thirds of the beer market, contracted at its sharpest rate since 1990 last year and the outlook for 2016 is nearly as bad with a political crisis now adding to its problems.
Beer volumes fell 10 percent in the quarter overall from a year earlier, but did recover in April, the brewer said.
AB InBev's first-quarter core profit (EBITDA) rose by 2.5 percent excluding the impact of currencies and one-offs to $3.46 billion, compared with the average forecast in a Reuters poll of $3.73 billion.
Earnings growth was also limited by a 13.5 percent rise in sales and marketing spend. AB InBev said this investment was weighted towards the first half of the year.
Eamonn Ferry, drinks analyst at Exane BNP Paribas, said that figures should improve in the second quarter, notably compared with a weak performance a year earlier, and that the early timing of Carnival and tax hikes and floods in Brazil could be considered one-offs.
"The shares won't be spared, but these things should put a floor on the decline," he said.
The brewer has succeeded in pushing through price hikes, but has been hit by the weakness of currencies, notably the Brazilian real and the Mexican peso, to the dollar, although Mexico was the star performer, with 13 percent more beer sold.
Overall, the company retained its forecast that revenue per hectolitre would grow ahead of inflation, with strong volume increases in Mexico, an improvement in the United States and a rise in revenue in Brazil outweighing sluggish sales in China.
China's manufacturing sector expanded for a second month in a row in April but only marginally, raising doubts about a recent pick-up in the world's second-largest economy.
AB InBev gave no new information on its planned $100-billion-plus takeover of its nearest rival SABMiller, saying it still expected the deal offering new markets in Africa and Latin America to close in the second half of this year. (Reporting By Philip Blenkinsop; editing by Robert-Jan Bartunek and Louise Heavens)