UPDATE 1-In race for top spot, VW says vehicle sales up 4.3 pct in 2017

* VW sold 10.7 mln units in 2017, its highest ever

* Figures put German firm above Toyota with 10.35 mln

* Renault-Nissan alliance yet to report annual tally (Adds estimate for Toyota, details)

FRANKFURT, Jan 17 (Reuters) - Volkswagen (VW) reported a 4.3 percent rise in 2017 sales to 10.7 million vehicles, staying ahead of Toyota in the race to keep the title of world's biggest carmaker although Renault-Nissan has forecast it would go top.

Last year's sales by the German firm, which is still dealing with fallout from a scandal over rigged diesel emissions tests, were its highest ever, helped by strong gains in China, Europe and South America. Monthly sales in December rose 8.5 percent.

Japan's Toyota Motor Corp said last month it expected 2017 sales to grow 2 percent to 10.35 million units worldwide across its Toyota, Lexus, Daihatsu and Hino brands. It said it would hit 10.50 million vehicles in 2018.

The Renault-Nissan alliance, which includes Mitsubishi Motors Corp, has yet to release combined sales volume figures but Renault boss Carlos Ghosn said in July it was headed for the top spot.

In 2016, VW was No. 1 with 10.3 million vehicle sales, Toyota was second with 10.2 million and Renault-Nissan was third with 9.96 million.

VW said December 2017 China sales jumped 17.8 percent to 460,100 vehicles, while monthly sales in Europe rose 3.1 percent, driven by Germany. U.S. sales were down 5.2 percent.

Overall, carmakers saw European sales fall 4.8 percent in December from the same month a year ago due in part to one less working day, industry data showed on Wednesday.

VW has set aside about 25 billion euros ($30 billion) to cover fines, lawsuits and vehicle repairs related to the diesel scandal. (Reporting by Ludwig Burger; Editing by Edmund Blair)