* Abilio Diniz buys 10 pct stake in Carrefour Brazil
* Diniz pays about 1.8 bln reais ($663 million) for stake
* Carrefour raises cash for Brazil expansion
* Carrefour has yet to decide on Brazil IPO - CEO
* Carrefour shares close up 4 pct (Adds details from news conference, analyst, closing shares)
By Dominique Vidalon and Brad Haynes
PARIS/SAO PAULO, Dec 18 (Reuters) - Carrefour has sold a 10 percent stake in its Brazilian business to billionaire Abilio Diniz, a step towards a possible separate listing as the world's No.2 retailer looks to raise cash to accelerate growth in its second-largest market.
With its core French business on the mend, Carrefour boss Georges Plassat has said he wants to speed up expansion in fast-growing Brazil and China, and that a flotation in Brazil was one of its funding options.
However Plassat, who held a conference call together with Diniz, cautioned on Thursday that current market conditions were not favourable to an initial public offering (IPO).
"We have not yet decided on the IPO. We have time. We will decide in peace if this is pertinent for the company," he said.
If Carrefour goes ahead with a Brazilian listing, it would join other Western retailers looking to sell or list parts of their more profitable emerging market businesses.
Germany's Metro, for example, was hoping to list its Russian cash-and-carry business, but had to shelve plans due to the Ukraine crisis, while Britain's Tesco spun off its Chinese operations this year into a joint venture.
Diniz's investment company Peninsula bought the 10 percent stake for about 1.8 billion reais ($663 million), confirming what a source with knowledge of the situation told Reuters on Wednesday.
Peninsula, which will have two seats on the Carrefour Brazil board, also has the option to raise its stake to a maximum 16 percent within five years.
Carrefour said the deal, which will strengthen its local ties, 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, but the deal valued it at around 6 billion.
Antoine Parison at investment bank Bryan Garnier said that was disappointing, though a partnership with Diniz was welcome given his knowledge of the market and experience as former chairman of Carrefour's main competitor in Brazil.
Carrefour shares closed 4 percent higher, outperforming 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 a 2.4 percent stake. Asked if he could raise that stake further, Diniz said: "I have always told Georges I am at his service to help him any way he wants"
The eldest son of the founder of GPA SA, Carrefour Brazil's arch rival owned by French retailer Casino , Diniz left GPA in September last year.
In 2011, Diniz fell out with Casino after he secretly sought to broker a merger with Carrefour. The deal 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.
Plassat said he would "substantially" boost investments in Brazil where Carrefour planned to open 20 new stores next year.
$1 = 2.7145 Brazilian reais Additional reporting by Guillermo Parra-Bernal, Marcela Ayres in Sao Paulo and Alexandre Boksenbaum-Granier In Paris; Editing by Leigh Thomas, David Evans and Mark Potter