PARIS (Reuters) - PSA Peugeot Citroen (>> PEUGEOT) narrowed its first-half loss and posted the first positive contribution from its core auto division in three years, as the French carmaker's recovery plan began to show results.

Paris-based Peugeot on Wednesday reiterated its recovery goals for 2014 and beyond, after reducing the net loss to 114 million euros (90 million pounds) from 471 million a year earlier.

"Our recovery plan is already producing results on all fronts," Chief Financial Officer Jean Baptiste de Chatillon told reporters on a call, adding that pricing had also improved.

Peugeot sold stakes to Chinese partner Dongfeng Motor Group (>> Dongfeng Motor Group Co. Ltd) and the French state earlier this year as part of a 3 billion euro share issue, after racking up losses of 7.3 billion in two years.

New Chief Executive Carlos Tavares pledged to trim the model line-up by almost half, cut capacity, raise price positioning, and pare wage and component costs to lift the automotive operating margin to 2 percent in 2018 and 5 percent by 2023.

Operating cash flow surged to 1.667 billion euros in January-June before restructuring from 203 million a year earlier as Peugeot slashed vehicle inventories to free up working capital.

"PSA certainly surprised us this morning with a much better-than-expected first-half result," London-based ISI Group analyst Erich Hauser said.

"It looks like PSA is actually performing well ahead of plan."

Despite stiff currency headwinds, the auto division returned to a 7 million euro operating profit - its first positive result since the first half of 2011 - from a 538 million loss.

Revenue fell 0.4 percent to 27.616 billion euros in the first half as emerging-market currencies continued their slide against the euro, putting a 251 million dent in earnings.

Operating income rose 55 million euros to 311 million at parts subsidiary Faurecia (>> FAURECIA), while the earnings contribution from sales financing arm Banque PSA Finance fell 26 million to 172 million.

"We need to stay lucid and recognise that we are only at the beginning of our turnaround," Tavares told analysts on Wednesday.

(Editing by Mark John and James Regan)

By Laurence Frost and Gilles Guillaume

Stocks treated in this article : FAURECIA, PEUGEOT, Dongfeng Motor Group Co. Ltd