(Adds CEO comment on exposure to and investment in Argentina, share price move and trader quote)
PARIS, July 31 (Reuters) - Carrefour, the world's second-largest retailer which reported higher first-half profits on Thursday, said it will slow down investment in Argentina in response to the country's second debt default in 13 years.
Chief Executive Georges Plassat said the impact of the debt default would be manageable for the retailer as it relies on the country for only 3 percent of group sales and 2 percent of operating profit.
Argentina defaulted on its debts earlier on Thursday after hopes for a midnight deal with creditors were dashed.
Shares in Carrefour slid 3.5 percent to 26.17 euros by 1059 GMT.
"Argentina weighs on the stock although the group's exposure to the country is limited," said a Paris-based trader.
Carrefour reported higher first-half profits in its core French business and in Brazil and Argentina. First-half recurring operating profit rose 13.8 percent to 833 million euros ($1.12 billion), while first half adjusted net income rose 16.7 percent at current foreign exchange rates to 274 million euros.
The retailer is battling to reverse years of underperformance in Europe, where it makes 73 percent of its sales. Its problems are partly due to a reliance on the hypermarket format it pioneered, as customers turn to local and online shopping.
Plassat has lowered costs, revamped stores, cut prices, simplified product offerings and given more autonomy to store managers, starting in France.
The first-half increase in recurring operating profit was driven by growth of 7.8 percent in Carrefour's core French market and 19.2 percent in emerging markets, with particularly strong performance in Brazil and Argentina.
Carrefour is the second-largest operator in the Brazilian food retail market, behind leader Grupo Pao de Acucar (GPA), controlled by Carrefour's arch-rival Casino, and just ahead of world number one retailer U.S. group Wal-Mart.
Carrefour, which has said it would spend more cash this year to revive its European hypermarkets and expand further in both emerging markets of China and Brazil, said its gross cash flow rose 1.9 percent excluding exceptionals to 1.3 billion euros.
Chief Financial Officer Pierre-Jean Sivignon said earlier in July that the analysts' consensus forecast for an operating profit of about 2.38 billion euros this year was "reasonable". That would be a 6.3 percent rise on 2013.
1 US dollar = 0.7465 euro Reporting by Andrew Callus and Emma Thomasson, Editing by Elaine Hardcastle