UPDATE 1-India's May car sales rise 2.5 pct y/y -industry

* Car sales rise for 4th month but seen losing pace

* Demand for trucks remain low, sales drop 10th month

* Motorcycle sales rise 12.3 pct in May
(Adds details, quotes)

By Devidutta Tripathy

NEW DELHI, June 8 (Reuters) - Car sales in India rose an
annual 2.5 percent in May, climbing for the fourth month, as
aggressive rate cuts and stimulus packages helped, but the
momentum is set to ease, an industry body said on Monday.

Borrowing costs still remain high and the effect of
government support measures such as tax cuts are waning, Sugato
Sen, senior director at the Society of Indian Automobile
Manufacturers (SIAM) said.

"The fundamentals are not improving. Industry is feeling
that the effects of stimulus is fading to some extent," he told
reporters. "You need more (stimulus)."

Companies sold 113,490 cars in May, compared with 110,745
cars a year ago, data from SIAM showed.

Sales of trucks and buses, which are more dependent on the
pace of economic activity, fell for a 10th straight month,
dropping 14.8 percent in May from a year earlier to 30,800
units.

"June will be worse than May, based on the feedback we are
getting," Sen said, referring to passenger vehicles that
include cars and utility vehicles.

Passenger vehicle sales fell 0.8 percent from a year
earlier to 140,823 units in May, the data showed.

India's economy grew 6.7 percent in the fiscal year ended
March, its weakest pace in six years, hurt by the global
economic crisis. The central bank expects growth to further
slow down to 6 percent in 2009/10.

Manufacturing was weak in the March quarter, posting a 1.4
percent contraction after having risen 0.9 percent in the
December quarter.

The world automobile industry has been going through a
rough patch, with Japan's industry-wide auto sales falling 19
percent in May from a year earlier. [ID:nT126610]

In the United States, May auto sales fell 34 percent from a
year earlier as Chrysler and General Motors GMGMQ.PK battles
bankruptcy. [ID:nN02511678]

Car sales in India, dominated by Maruti Suzuki (MRTI.BO),
54.2 percent owned by Japan's Suzuki Motor Corp (7269.T), have
been rising since February after the government reduced
factory-gate duties and also initiated measures to reduce
interest rates.

Maruti, which controls 1 in 2 cars sold in India, earlier
reported its May sales rose 15.8 percent from a year ago to
79,872 but Tata Motors' (TAMO.BO) passenger vehicles sales fell
16 percent. [ID:nBOM473126] [ID:nBOM450572]

Analysts expect India's economy will pick up in the second
half of the year, with Prime Minister Manmohan Singh's
coalition that won a second five-year term in May expected to
announce more spending to speed up growth. [ID:nDEL155586]

Motorcycle sales rose 12.3 percent to 576,541 units in May,
powered by Hero Honda Motors HROH.BO, owned 26 percent by
Japan's Honda Motor Corp <7267.T >, which rode on strong demand
from rural and semi-urban areas.

The BSE Auto Index .BSEAUTO has more than doubled so far
in 2009 while the main index .BSESN has risen more than 50
percent.

"The auto stocks were the most beaten down last year and
the recovery has also been faster for them," said Vaishali
Jajoo, auto analyst with Angel Broking.

"With sales growing every month for the last four months,
people are expecting a recovery in the longer term. A dip for
one or two months will not make much of a difference."

She said sales in June and July were usually low because of
monsoon rains and fewer marriages.
(Writing by Janaki Krishnan; Editing by Ranjit Gangadharan)