* European car sales rise 4.3 pct in June to 1.23 mln
* Jan-June sales rise 6.2 pct to 6.85 mln autos
* Rise in sales boosted by new products, incentives (Adds details, quotes)
MILAN, July 17 (Reuters) - New car sales in Europe rose 4.3 percent in June, industry data showed on Thursday, as an economic recovery in southern Europe, new product launches and retail incentives boosted demand for mass-market brands.
New passenger car registrations in the European Union and European Free Trade Association trading block rose for the tenth consecutive month to 1.23 million vehicles in June from 1.18 million in the same month last year, according to data from the Association of European Carmakers (ACEA).
Europe's car industry endured a six-year slump, with sales falling to their lowest level in two decades as austerity-hit consumers cut back on expensive purchases, but the market has gradually returned to growth.
In the first six months of this year sales across the region rose 6.2 percent to 6.85 million vehicles, ACEA added.
However, the June rise comes from a low base and was spread unevenly across the region. Analysts also said that heavy discounting and other incentives were distorting the true level of demand.
Retail incentives across Europe's top five markets increased 10 percent year on year to a record 2,748 euros ($3,700) per vehicle, according to data from a major independent market research firm.
"As we move into the second half, consumers are likely to replace ageing vehicles, driven by a recovery in western Europe's labour market and positive consumer sentiment due to an improving economic scenario," said Ernst & Young senior automotive partner Peter Fuss, adding that he expects the car sales growth momentum to continue for the rest of the year.
"We anticipate discounts and self-registrations to decline gradually as economic fundamentals improve and the replacement cycle returns to normal."
At a brand level, mass-market manufacturers including Renault's eponymous brand and its no-frills Dacia marque, Volkswagen's Skoda and Seat and General Motors' Opel all posted stronger growth in June than premium marques BMW and VW's Audi.
DACIA SALES LEAP
Sales jumped 32.2 percent at Dacia, 20.6 percent for the Renault brand and 11.7 percent at Opel. Sales at Volkswagen's Spanish carmaker Seat rose 13.2 percent and 12.6 percent at its Czech division Skoda.
Deliveries for the world's two largest luxury carmakers BMW and Audi rose 7.6 percent and 1.4 percent, respectively, while sales at Daimler dipped 0.7 percent, held back by a 19.1 percent plunge in deliveries of the Smart city car.
Daimler hopes that a cooperation tie-up with Renault and the launch of new Smart models will make the brand profitable.
Registration of VW's namesake brand, the carmaker's biggest division by sales and deliveries, fell 2.8 percent in June. VW said it would seek to cut costs at the brand as it struggles to match the earnings power of global rival Toyota.
June registrations underperformed the regional trend in Europe's second-biggest car market France and Italy, the fourth-largest, by rising 2.5 percent and 3.8 percent respectively, while falling nearly 2 percent in top market Germany, where sales were held back by fewer working days than a year ago.
However, they grew in double digits in some states most hit by the financial crisis - increasing by 23.9 percent in Spain and 23.6 percent in Portugal - showing that the region's fragile recovery was gaining momentum. ($1 = 0.7394 Euros)
(Editing by David Goodman)