UPDATE 1-Brazil May car sales fall 10 pct from April

* New car sales drop in May after expiry of tax breaks

* Fiat leads market again in May, with VW in close second

(Adds dealers association throughout, quote)

SAO PAULO, June 1 (Reuters) - Automobile sales in Brazil fell 10 percent in May from April, slipping for the second straight month after the phasing out of a tax break that had pushed up sales early in the year, the national dealers association Fenabrave said on Tuesday.

Carmakers sold 235,674 units in May, down from 261,897 in April, Fenabrave said. Automobile sales reached 237,464 in May 2009.

"The numbers do not show a tendency of falling vehicle sales," Fenabrave President Sergio Reze said. "The sector already expected the market to stabilize since the pace of sales was driven by the reduction in the IPI tax and promotions."

He added that compared with 2009, the sector grew more than 4 percent in May.

Brazil is the world's fifth-biggest auto market, and some automakers say Latin America's largest economy is on pace to take over Germany's No. 4 spot this year, as exports and local demand continue to grow.

The industry reported record sales of new vehicles in March, boosted by a series of government tax breaks in 2009 that helped carmakers in Brazil ride out the global financial crisis and the drop in demand for exports.

Auto sales surged while prices were low but carmakers had predicted a sales decline for April and May after the tax breaks were phased out.

So far this year, 1.25 million new cars and light vehicles have been registered, a 13 percent increase from the same period a year earlier.

Brazil is a major market for Italy's Fiat SpA (FIA.MI), Germany's Volkswagen AG (VOWG.DE), and U.S.-based Ford Motor Co (F.N) and General Motors [GM.UL].

Fiat continued to lead sales in May, with a 23.3 market share, followed closely by VW with 23.1 percent, and GM with 19.7 percent, the source said.

Global automakers are expected to invest up to $11.2 billion in Brazil over the next two years to meet a surge in demand. (Reporting by Alberto Alerigi Jr; Writing by Luis Andres Henao; Editing by Maureen Bavdek and Gunna Dickson)