* Q1 core earnings 696 million crowns vs 662 million forecast
* Plans price rises to offset raw materials costs
* Sees modest growth in demand in 2011
* Shares flat
(Adds CEO quotes, background, share price)
By Patrick Lannin and Helena Soderpalm
STOCKHOLM, April 27 (Reuters) - World number two home appliances maker Electrolux AB expects its price rises to stick as rival manufacturers also seek to pass on soaring raw materials costs to customers.
Both Electrolux and market leader Whirpool Corp have been hiking prices to offset costs for materials such as steel and plastics, and are seeking growth in emerging markets.
"It was a tough quarter with raw materials up and pricing being pressured, we knew this was going to be a tough quarter," Electrolux Chief Executive Keith McLoughlin told Reuters after the group reported a 43 percent drop in core earnings to 696 million crowns ($114.1 million).
That was slightly better than the average forecast in a Reuters poll for 662 million crowns.
The group's shares edged up 1 percent in early trade, but pared gains to trade 0.1 percent higher by 0915 GMT.
Given a maintained forecast for a modest rise in demand in North America and Europe, Electrolux has said it would raise prices to offset earlier promotions and price cuts in the competitive industry.
The price rise in North America has averaged 4 percent and the group is planning hikes in Europe and Latin America too.
He said all key appliance makers had announced similar rises, "so that gives me some confidence that it (the price rises) will stick".
Some analysts have questioned whether cash-strapped consumers in slow-growing developed economies will baulk at price increases for expensive goods like appliances.
"We expect 2011 will be essentially the inverse mirror of 2010: first half comparisons pretty tough ... and the second half would be much better," McLoughlin said.
"Sequentially, we are quite confident that q2, q3 and q4 will be better going forward."
Showing the raw materials pressure, McLoughlin raised the forecast for cost increases this year to 2 billion crowns ($327.8 million), the top of a previous range of 1.5 to 2.0 billion, of which 650 million crowns was in the first quarter.
"We expect that price pressure in terms of impact to earnings going forward will be mitigated somewhat by these price increases," McLoughlin added.
MODEST GROWTH
Both Electrolux and Whirlpool have been seeking growth in fast growing emerging markets and Electrolux noted in its report that demand in eastern Europe rose 13 percent in the first quarter. However, overall demand in the North American and European markets increased by just 1 percent.
"Market demand for appliances in Europe and North America is expected to show a modest growth in 2011," the group said.
"Demand in Europe is expected to increase by approximately 2 percent and demand in North America by 3-5 percent in 2011," it said, in a slight upgrade of the previous North American outlook for 3 percent growth.
Electrolux has a preliminary agreement to buy Egyptian appliances group Olympic Group as part of its strategy to increase its footprint in emerging markets, but the political turbulence in Egypt has delayed the plans.
McLoughlin said he expected the deal to go through this year, though he wanted to get the situation to settle down a bit.
"Is this a good strategic move? It clearly is," he said, adding that the group wanted to get a picture of what the next year to 18 months would be like.
"We are all just trying to get clarity and stability."
Whirpool is due to report its first quarter later on Wednesday.
($1=6.102 Swedish Crown)
(Reporting by Patrick Lannin; Editing by David Holmes and Erica Billingham)