UPDATE 3-European car sales lacklustre in May
* German car sales rise in May
* German sales flattered by extra sales days, incentives
* Italy car registrations fall 3.8 pct
* Spain sales helped by govt subsidy scheme (Recasts lead, adds Italy sales)
FRANKFURT/MILAN, June 3 (Reuters) - New car registrations across Europe were generally lacklustre in May after a rebound in the first few months of the year, although sales in Germany and Spain were higher due to incentives and subsidies.
Europe's car market has shown signs of recovery from a six-year slump, but excess production capacity, heavy discounting and incentives continue to distort the true level of demand.
New car registrations in Germany, Europe's largest auto market, rose 5.2 percent in May, led by incentive-fuelled sales from Opel, part of General Motors Peugeot and Citroen .
But German sales actually dropped if two extra sales days in May this year compared with the same month a year ago were excluded, analysts said. This follows a 3.6 percent fall in sales in April.
"We have seen incentives go up in Germany and the most generous incentives are being offered by Peugeot, Citroen and Opel," Mike Tyndall, an autos analyst at Barclays, said.
He said average incentives, or discounts, for Peugeot and Citroen were at 24 percent. For Opel they were 25 percent, Tyndall said, adding that German sales were further flattered by the fact that registrations in the year-earlier period were particularly weak.
Sales of premium brands Mercedes, which is owned by Daimler , and BMW fell 0.5 percent and 4.8 percent respectively as both auto makers review the cost structure of their German operations and stop short of heavy discounting.
Elsewhere in Europe, the market proved uninspiring.
Sales in Italy, Europe's fourth-largest car market, fell 3.83 percent from the same month a year ago with Fiat Chrysler Automobiles sales down 11 percent, the transport ministry said.
"The caution we exercised over the modest rises seen in the first few months of 2014 is unfortunately vindicated in the May number which we think is not a sign of slowdown but of stagnation ... no pickup therefore," Filippo Pavan Bernacchi, president of car retailers' group Federauto, said.
In Spain, car sales rose 16.9 percent, while in France sales inched 0.1 percent higher.
Spain's May sales marked the ninth straight month of increases, car manufacturers' association Anfac said on Monday, as a government subsidy scheme helped to spur buying.
In contrast, Belgian car sales fell 3.51 percent in May.
(Reporting Edward Taylor and Jan Schwartz, and Stephen Jewkes in Milan.; Editing by Susan Thomas and Jane Merriman)
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