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UPDATE 2-China Sept vehicle sales down 1.8 pct yr-on-yr

* September sales down 1.8 percent yr-on-yr

* Last monthly fall was in Jan 2012

* Collapse of Japanese carmakers' sales adds downwardpressure

* Japanese market share down to 20.3 pct end Sept vs 21.6 in2011

* German, S. Korean market share rises(Adds comments, detail) By Fang Yan and Kazunori Takada

BEIJING/SHANGHAI, Oct 10 (Reuters) - Vehicle sales in Chinafell 1.8 percent in September from a year earlier, as Japaneseautomakers' sales collapsed, adding to downward pressures from aslowing economy and rising fuel costs that have weighed on theworld's biggest auto market.

September's was the first monthly fall since January 2012,raising the risk of a deeper slump which would harm Chinese andforeign carmakers alike.

"I think Japanese vehicles, imported Japanese vehicles andChina-Japan joint venture produced vehicles, probably won'trecover very soon, and will be affected in the long term," saidDong Yang, secretary-general of the China Association ofAutomobile Manufacturers (CAAM), after CAAM released the monthlydata.

A territorial row between China and Japan, which spurredviolent protests in some parts of China last month as well ascalls for boycotts of Japanese products, hammered Japanese carsales, a shift from which European and South Korean firms havebeen the chief beneficiaries.

A slowing domestic economy has also dampened demand forcommercial vehicles, for which sales in September were down 7.6percent from the year-ago level, marking their eighth monthlyfall since the beginning of the year.

Industry-wide sales in China, including passenger cars andcommercial vehicles, totaled 1.62 million vehicles in September,compared with 1.65 million a year ago, CAAM said.

Sales in the first nine months were up 3.4 percentyear-on-year to 14.1 million.

To encourage demand, the government is likely to launch anew round of incentives to buy mini vehicles with enginessmaller than 1.3 litres, and heavy trucks in rural areas, theofficial journal China Securities News said on Wednesday.

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Graphic of China sales: Passenger car sales: Japan carmakers in China: ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

SAIC Motor Corp , Dongfeng Motor Corp and FAWGroup are the top three automakers in China, selling 3.28million, 2.33 million and 1.98 million vehicles respectively inthe first nine months, according to official data.

SAIC makes vehicles in partnership with General Motors

and Volkswagen AG ; Dongfeng works with HondaMotor Co , Nissan Motor Co and PSA PeugeotCitroen ; and FAW's partners are Volkswagen and ToyotaMotor Corp .

The backlash against Japanese brands has helped BMW, whose China sales surged 55 percent in September,Volkswagen's Audi which gained 20.5 percent, and Hyundai MotorCo , whose China sales rose 15 percent.

MARKET SHARE

Total sales of Japanese passenger cars in China fell 29.5percent from the previous month, CAAM said.

Toyota Motor Corp's monthly tally fell 48.9 percentin September from a year earlier, while Honda Motor Coreported a 40.5 percent slide in its sales in China.

At the end of September, German carmakers had a 23.4 percentshare of China's passenger car market, up from 21.3 percent ayear ago. The South Korean share was up to 9.5 percent from 9percent, CAAM's data showed.

The Japanese firms' share was down to 20.3 percent from 21.6percent last year.

"I think October, November and December will continue to betough months for the Japanese brands, unless there is someprogress in the Senkaku (islands) issue," said Koji Endo, asenior analyst at Advanced Research Japan, referring to thedisputed isles which are known as Diaoyu in China.

Also on Wednesday, an industry body in India, the world'ssixth largest car market by sales, cut its car sales growthforecast to just 1-3 percent in the current financial year, downfrom an earlier estimate of 10 percent, as slowing economicgrowth stifles the industry.

(Reporting by Fang Yan in BEIJING and Kazunori Takada inSHANGHAI; Editing by Daniel Magnowski)

((yan.fang@thomsonreuters.com)(86 10 6627 1233)(ReutersMessaging: yan.fang.reuters.com@reuters.net))

Keywords: CHINA AUTOS/