The world's largest food group which makes brands such as Nescafe, Perrier, Maggi and Carnation warned that 2012 would be just as difficult as previous years due to continued economic uncertainties and volatility.

"It was a challenging year, and we do not expect 2012 to be any easier," Chief Executive Paul Bulcke said in a statement.

Underlying sales growth for 2011 was 7.5 percent, beating an consensus forecast for 7.1 percent and rising from 7.3 percent in the first nine months, as it forecast underlying growth returning to its long term range 5-6 percent.

Nestle also made its standard forecast for "improved margin and underlying earnings per share in constant currencies" for 2012 after reporting a 0.2 percentage point fall in its underlying operating margin in 2011 down to 15.8 percent.

"Overall we believe the market will react well to the strong sales results and positive outlook on 2012, despite the margin miss. However, we remain cautious on sales momentum entering 2012," Bernstein analyst Andrew Wood said in a note.

Nestle shares, which have lagged rivals to rise barely 1 percent this year, rose 1.1 percent to 55.05 francs by 0900 GMT, compared to a European food and drinks sector .SX3P up just 0.3 percent.

The group reported that absolute 2011 sales fell 4.8 percent -- slightly better than expected -- to 83.6 billion Swiss francs ($90.5 billion), as the rise in the safe-haven currency more than cancelled out underlying growth.

NEW PRODUCTS IN TOUGH MARKETS

It managed 3.7 percent underlying sales growth in the tough markets of Portugal, Italy, Greece and Spain and recorded a big surge in margins in Europe as it pushed new products like Dolce Gusto coffee and Maggi spice-filled roasting bags.

"The key to our progress in Europe is innovations," Chief Financial Officer Jim Singh told an analyst conference call.

Analyst Polly Barclay at JP Morgan said, "Nestle should trade at a premium to the sector given its relative resilience in Europe." Its shares currently trade in line with the sector.

French food rival Danone (DANO.PA) trimmed its sales growth and margin targets for 2012 on Wednesday, saying tough west European markets would offset strong growth in emerging markets, which now account for more than half of sales.

Anglo-Dutch consumer goods group Unilever (ULVR.L) (UNc.AS) sounded a similar tone, saying 2012 will be a difficult year as growth in emerging markets slows and demand in Europe and North America stays flat at best.

Singh declined to comment on Nestle's interest in buying Pfizer's (PFE.N) $10 billion Wyeth infant nutrition business in an attempt to boost its Chinese business.

The Swiss giant made no move to reinstate its share buyback program, cancelled back in August, which helped stoke talk the group was more interested in acquisitions, analysts said.

Nestle is seen as a front-runner alongside French rival Danone (DANO.PA), according to banking sources, although both have been silent on the issue, declining even to acknowledge they are in the auction process.

Executives will also be asked on Thursday about Nestle's 31 percent stake in French cosmetics maker L'Oreal (OREP.PA) which said this week that heiress Liliane Bettencourt, 89, with a 30 percent stake in the 49 billion-euro company, was leaving the board to be replaced by her grandson Jean-Victor Meyers. [ID:nL5E8DD88M] ($1 = 0.9236 Swiss francs)

(Editing by David Cowell and David Jones)

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