* Q3 like-for-like sales, ex fuel, up 0.2 pct
* Outcome is 36th straight quarter of like-for-like salesgrowth
* Sees Q4 outcome similar to Q3
* Cuts like-for-like sales year growth forecast to "justbelow 1 pct"
* Shares fall up to 2.7 pct
By James Davey
LONDON, Jan 8 (Reuters) - British grocer J Sainsbury reported its "best Christmas ever" on Wednesday butwarned that consumers were likely to tighten their belts in theearly part of 2014 and cut its sales growth forecastaccordingly.
"We expect customers to spend cautiously in the few monthsfollowing Christmas, in an attempt to rebalance the householdfinances," Chief Executive Justin King said on Wednesday.
That caution and a revision to its sales forecast for thefull year sent the share price down by up to 2.7 percent to 359pence, trimming a gain of 11 percent over the last year.
Though there are signs of an improving economy Britain'smajor food retailers are finding the going tough as consumers'disposable incomes remain under pressure from wage rises notkeeping up with inflation.
Analysts reckon all of the UK's "big four" grocers - Tesco, Wal-Mart's Asda, Sainsbury's and Morrisons - lost market share and saw like-for-like sales volumesdecline in the run-up to Christmas, reflecting a subdued overallmarket and increased promotional activity.
"It's the consumer back-drop that really makes it tough. Ifpeople haven't got the money to spend, no matter how hard we trycompetitively as an industry, it won't get spent," King toldreporters.
Sainsbury's which trails market leader Tesco and is battlingwith Asda to be the UK's second-biggest grocer, said sales atstores that have been open over a year rose 0.2 percent,excluding fuel, in the 14 weeks to Jan. 4, its fiscal thirdquarter, with total sales up 2.7 percent.
Though that was ahead of analysts' forecasts which rangedfrom flat to down 1 percent and represented a 36th consecutivequarter of underlying sales growth, it was a slowdown fromsecond-quarter like-for-like growth of 2 percent.
Chief Financial Officer John Rogers said he expected asimilar outcome in the fourth quarter and revised like-for-likesales growth expectations for the full current year to "justbelow 1 percent" from 1-1.5 percent previously.
King said the quarter was characterised by a "very toughsales environment" throughout October and November, but withrecord numbers of customers and strong sales in the key periodover Christmas.
The "big four" are also being squeezed on market sharebetween discounters Aldi and Lidl andup-market grocers Waitrose and Marks & Spencer.
Waitrose reported on Wednesday a 3.1 percent rise inlike-for-like sales for the five weeks to Dec. 31, while theCo-operative Group posted a 1 percent increase in the Christmasquarter.
Aldi and Lidl both said on Tuesday they enjoyed recordtrading at Christmas. Tesco updates on Thursday and is forecastto report a fall in UK sales at stores open over a year,excluding fuel and VAT sales tax, of 0.5-2.5 percent for the sixweeks to Jan. 4.
Asda said on Monday it saw a good performance at Christmasboth in store and online but will not release figures until Feb.20. Morrisons is due to update on Jan. 20.
"The competitive heat in 2014 can be expected to go up agear as the hard discounters in particular are given less of a'free-run' by what we deem to have been collectivelysleep-walking and somewhat complacent and promotionallyintoxicated superstore operators," said Shore Capital analystClive Black.
Sainsbury's strategy is focused on own-brand products andinvesting in online and local convenience store channels.
In its third quarter online grocery sales rose over 10percent, while convenience sales were up nearly 18 percent. Thatmeant like-for-like sales in its core stores were down.
Tesco (TSCO)
Marks & Spencer (MKS)
Sainsbury's (SBRY)