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UPDATE 2-Goodyear Tire sales miss on weaker demand, rising competition

* Q2 revenue drops 5 pct to $3.69 bln

* Slashes FY forecasts for tire sales, segment operating income

* Shares fall as much as 13 pct (Adds details, context; updates shares)

July 28 (Reuters) - Goodyear Tire & Rubber Co, the largest U.S. tire maker, reported lower-than-expected quarterly sales as demand for tires weakened, and slashed its full-year forecast for tire unit sales and segment operating income.

Shares of the company fell as much as 13 percent to $31.00 in early trading on Friday, marking their biggest intraday percentage drop in nine months.

"Our second quarter results reflect the impact of volatile raw material costs and an increasingly challenging competitive environment, particularly in the United States and Europe," Chief Executive Richard Kramer said on Friday.

Demand weakened for Goodyear in both the original equipment and replacement markets, Kramer said, with replacement tire shipments dropping 11 percent and original equipment unit volume down 8 percent, in the quarter ended June 30.

Goodyear, which had hiked tire prices twice this year to counter higher raw material costs, said April tire volumes were "significantly worse-than-expected," mainly due to the timing of the price increases in the United States and Europe.

The company's quarterly sales in the Americas slipped 2.9 percent to $2.03 billion and unit volumes fell 9.2 percent to 17.1 million as competition intensified and automobile production declined.

The Akron, Ohio-based company's main rivals in Americas include Japan's Bridgestone Corp and France's Michelin .

Major automakers have said U.S. new vehicle sales fell in June, the fourth straight month of decline, despite hefty consumer discounts and looser loan terms, underscoring concerns that the U.S. auto industry is entering a downturn after several years of strong sales.

Goodyear's sales in Europe, the Middle East and Africa (EMEA) fell 11.7 percent to $1.11 billion in the quarter, hurt by lower demand for summer tires in Europe and mounting competition.

The company said its 2017 tire unit sales are expected to fall about 3.5 percent from last year, compared with its previous forecast of sales holding steady.

The company also lowered its forecast for full-year segment operating income to a range of $1.6 billion to $1.65 billion, from its previous forecast of $2 billion.

Net income fell 27.2 percent to $147 million, or 58 cents per share, in the quarter.

On an adjusted basis, the company earned 70 cents per share, in line with analysts' average estimate, according to Thomson Reuters I/B/E/S.

Revenue fell about 5 percent to $3.69 billion, missing estimate of $3.70 billion.

Up to Thursday's close, shares of the company had risen 15.3 percent this year. (Reporting by Arunima Banerjee in Bengaluru; Editing by Amrutha Gayathri)