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UPDATE 1-Honda China sales fall by half in Oct on island dispute

Friday, 2 Nov 2012 | 6:39 AM ET

(Adds details, comment)

* Island row fallout still weighs on sales

* S.Korea's Hyundai sales up 37 pct in Oct vs yr earlier

BEIJING, Nov 2 (Reuters) - Honda Motor Co Ltd's China car sales plunged 54 percent in October from a year earlier, marking the second monthly sales slump as Japanese automakers continue to suffer the backlash from a territorial dispute between Beijing and Tokyo.

Honda, which earlier this week cut its full-year earning forecast by a fifth, has warned it could be February before business returns to normal in its second-largest market, where consumers are turning to German, Korean and U.S. cars instead.

``People no longer take to the street anymore as they did in mid-September, but they aren't buying a lot of Japanese cars either,'' said Zhang Xin, an industry analyst at Guotai Junan Securities, speaking before the latest figures were released.

``There will be some recovery down the road but it will be very slow.''

Violent protests and calls for boycotts of Japanese products broke out across China in September after Japan nationalized two disputed islands in the East China Sea, known as the Diaoyu in Chinese and the Senkaku in Japanese, by purchasing them from their private owners.

The street protests have since eased by diplomatic tensions continue to fester, with both Japan and China sending patrol ships to waters near the uninhabited islands in recent weeks.

In further evidence that South Korean and some European car makers were benefiting at the cost of their Japanese rivals, Hyundai Motor said its China sales climbed 37 percent in October from a year earlier.

Honda, which builds cars in partnership with Dongfeng Motor Group Co and Guangzhou Automobile Group Co , sold 24,115 cars in China in October, down from 51,826 a year earlier.

The decline had accelerated from September, when sales plunged 41 percent from the year-ago level. Sales in the first 10 months climbed 2.7 percent to 494.108, the company said in a brief statement.

Toyota Motor Corp's China sales were down 44 percent in October after a 49 percent fall in September.

Honda said on Monday that its two biggest China plants would continue to run on one shift, rather than two, until at least the middle of next month, with output then gradually picking up ahead of Lunar New Year in February - a traditional buying season.

It has cut its full-year China sales forecast by 17 percent to 620,000 vehicles, but said it would stick to the plan to invest $880 million to expand capacity at its factories in Guangzhou and Wuhan over the next few years.

(Reporting by Fang Yan in BEIJING and Kazunori Takada in SHANGHAI; Editing by Alex Richardson)

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