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 downward pressure

* Japanese market share down to 20.3 pct end Sept vs 21.6 in 2011

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

BEIJING/SHANGHAI, Oct 10 (Reuters) - Vehicle sales in China fell 1.8 percent in September from a year earlier, as Japanese automakers' sales collapsed, adding to downward pressures from a slowing economy and rising fuel costs that have weighed on the world'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 and foreign carmakers alike.

"I think Japanese vehicles, imported Japanese vehicles and China-Japan joint venture produced vehicles, probably won't recover very soon, and will be affected in the long term," said Dong Yang, secretary-general of the China Association of Automobile Manufacturers (CAAM), after CAAM released the monthly data.

A territorial row between China and Japan, which spurred violent protests in some parts of China last month as well as calls for boycotts of Japanese products, hammered Japanese car sales, a shift from which European and South Korean firms have been the chief beneficiaries.

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

Industry-wide sales in China, including passenger cars and commercial 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 percent year-on-year to 14.1 million.

To encourage demand, the government is likely to launch a new round of incentives to buy mini vehicles with engines smaller than 1.3 litres, and heavy trucks in rural areas, the official 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 FAW Group are the top three automakers in China, selling 3.28 million, 2.33 million and 1.98 million vehicles respectively in the first nine months, according to official data.

SAIC makes vehicles in partnership with General Motors

and Volkswagen AG ; Dongfeng works with Honda Motor Co , Nissan Motor Co and PSA Peugeot Citroen ; and FAW's partners are Volkswagen and Toyota Motor 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 Motor Co , whose China sales rose 15 percent.


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

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

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

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

"I think October, November and December will continue to be tough months for the Japanese brands, unless there is some progress in the Senkaku (islands) issue," said Koji Endo, a senior analyst at Advanced Research Japan, referring to the disputed isles which are known as Diaoyu in China.

Also on Wednesday, an industry body in India, the world's sixth largest car market by sales, cut its car sales growth forecast to just 1-3 percent in the current financial year, down from an earlier estimate of 10 percent, as slowing economic growth stifles the industry.

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

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

Keywords: CHINA AUTOS/