UPDATE 2-German May car sales up 40 pct on tax "steroids"

* Germany sales up 40 percent vs 34 percent decline in U.S.

* Car scrappage incentive scheme seen boosting sales

* Analyst forecasts Germany slump to return in 2010

(Recasts, adds background, detail)

FRANKFURT, June 3 (Reuters) - German auto sales rose 40 percent in May, spurred by government scrappage incentives, but auto shares fell, with investors unconvinced that the measures were generating a sustainable turnaround in demand.

Germany's KBA motor vehicles agency said May car registrations rose to 384,578 units, up 39.7 percent from the same month last year.

The boost in demand in Europe's largest auto market stands in stark contrast to a 34 percent slump in May in the U.S., the world's biggest vehicle market.

In February the Berlin government launched a subsidy that pays motorists 2,500 euros ($3,310) to scrap cars at least nine years old if they buy a new model from any automaker in exchange. The scheme runs until the end of 2009.

Shares in VW (VOWG.DE) had slipped 4.1 percent to 242.92 euros by 1500 GMT, despite the fact that it was the clear beneficiary of the scheme among German auto makers. VW's new vehicle registrations in May rose 60.2 percent in Germany, figures show.

"People know it's steroids, it's not real," Morgan Stanley analyst Adam Jonas said. "It's pleasure upfront with the pain coming next year."

Shares in luxury auto makers were also down. The incentive scheme benefited mainly makers of smaller cars.

Daimler shares were down 3.5 percent at 26.06 euros. Its May vehicle registrations fell 2.4 percent.

BMW shares were down 1.1 percent following news of a 6.7 percent fall in registrations.

The incentive scheme proved so popular that the government agreed to boost it to 5 billion euros from the initial 1.5 billion, but Morgan Stanley's Jonas said demand would drop off once the incentive scheme runs out.

In the absence of strong incentives, unit volume in Germany in May 2010 could be down as much as 30 percent year on year, he said.

Car importers association VDIK raised its 2009 forecast for new car registrations in Germany to 3.45 million units. It previously forecast registrations in Europe's largest car market would top the nearly 3.1 million units sold in 2008.

For a story on the sale process for Opel click on [ID:nL3521811]

For a story on Porsche seeking a loan from state bank KfW click on [ID:nL31021600]

(Reporting by Edward Taylor in Frankfurt and Jan Schwartz in Hamburg, editing by Will Waterman) (Edward.Taylor@thomsonreuters.com, Reuters Messaging: Edward.Taylor.reuters.com@reuters.net))