* Q1 pretax profit $6.1 bln vs $4.3 bln forecast
* CET1 capital ratio flat at 11.9 pct
* Brazil sale to be completed in Q2
* Shares trading 1.36 percent lower by 1207 GMT (Updates share price)
By Lawrence White and Sumeet Chatterjee
LONDON/HONG KONG, May 3 (Reuters) - HSBC stuck to its promise of higher dividends on Tuesday after a 14percent profit drop fuelled doubts among some investors aboutthe bank's ability to increase payouts.
Europe's biggest bank also failed to boost its key capitalratio, underlining the challenge it faces in building capitalbuffers while growing its market leading 8 percent dividendyield.
The bank's dividend policy contrasts with European rivalsincluding Barclays, Standard Chartered andDeutsche Bank AG, all of which have scrapped orreduced payouts as they grapple with restructuring costs.
"I don't think those share prices have performed well as aresult of cancelling dividends...it's not something ourshareholders would thank us for," Chief Executive StuartGulliver said on a conference call.
HSBC's dividend payout is already the highest among majorEuropean banks, according to Thomson Reuters data.
Bernstein analyst Chirantan Barua said in a note that aprogressive dividend policy was "untenable" given the toughearnings environment and the fact that HSBC had not yet reachedits regulatory capital threshold.
However, Gulliver said the $5.2 billion sale of HSBC'sBrazil business to Banco Bradesco SA should be completed by June30, and would take its key capital ratio to around 12.5 percent.HSBC reported this was unchanged at 11.9 percent, from the endof last year, against analyst forecasts of 12.1 percent,
Finance Director Iain Mackay added that it would take asharp decline in revenues if the global economy moved intorecession, or regulatory demands for higher capital levels, tosee HSBC reverse its stance on the dividend.
HSBC booked a pretax profit of $6.1 billion for the firstthree months of 2016, down from $7.1 billion a year ago, butabove an average forecast of $4.3 billion from analysts polledby the bank itself.
This reflected a tighter grip on expenses than analysts hadforecast and a resilient performance from the bank's tradingbusiness during rocky global markets earlier in the year.
"It (the dividend) can be maintained. I forecast a flat 51cents dividend this year although I don't expect that to becovered by earnings," Investec analyst Ian Gordon told Reuters.
EARNINGS
Besides worries about the dividend, investors also suffereda drop in earnings per share to $0.20 compared with $0.26 forthe equivalent period in 2015.
That fall is expected to reignite speculation about a sharebuyback in the near future, after Gulliver said the bank wasconsidering purchases to shore up HSBC's wilting shares, whichare down by 28 percent in the last 12 months.
HSBC's shares gave up early gains of as much as 2.5 percentand were trading 1.36 percent lower by 1207 GMT.
Investors remain concerned over whether HSBC can improverevenues without exceeding its cost of capital by expanding inChina at a time of slowing economic growth there.
Gulliver said a 22 percent drop from revenues associatedwith the internationalisation of the yuan in the first quarterwas the result of declining customer interest in forex options,but other China initiatives should pick up the slack.
(Writing by Sinead Cruise; Editing by Mark Potter and AlexanderSmith)
HSBC Holdings (HSBA)