UPDATE 2-France's Leclerc still selling Pepsi after Carrefour drops Pepsico products

(Adds Danone comment in paragraph 6)

By Dominique Vidalon

PARIS, Jan 8 (Reuters) - The head of France's biggest supermarket chain E. Leclerc said on Monday it was still selling Pepsi after rival Carrefour ditched PepsiCo products in the latest tug-of-war between retailers and global food giants over prices.

Michel Edouard Leclerc also told BFM TV he was optimistic that food inflation in France would return to a range of 2.5% to 3% this year as consumer goods companies had become "more reasonable".

Commenting on annual price negotiations with suppliers due to end on Jan. 31, Leclerc said he had asked French food giant Danone for price cuts that he hoped would become effective in February-March.

"All the big industrial groups are playing for time. They are in no hurry to sign before Jan 31. Prices for the year are being decided now," he said.

"I want to be the most affordable (retailer) in France...I will ask Danone for deflation," he added, without citing a figure.

Danone said in a statement that it was holding weekly meetings and talks with all its clients on all its product categories. "The coming weeks will be key for finding with our partners the right balance between protecting the French purchasing power and suporting a fair, lasting and responsible (business) model," it said.

France has been gripped by a debate over the price of staples, with retailers claiming that producers' price increases are unjustified. The government has demanded retailers and suppliers finish annual price negotiations in January, two months earlier than usual, as it seeks to lower inflation.

Asked if Leclerc would, like Carrefour, withdraw Pepsico or any other products from its shelves because of high prices, he said: "I continue to sell Pepsi." "We can tell suppliers: see with lower prices you can build up revenue and I think this argument will prevail over a show of strength," he said.

Carrefour said last week its stores in France, Belgium, Italy, Spain, and Poland would no longer stock products including Pepsi, Lay's Crisps, Cheetos, and 7up because of "unacceptable price hikes".

(Reporting by Dominique Vidalon, editing by Tassilo Hummel, Kirsten Donovan)