UPDATE 1-German new car registrations soar 40 pct in June

* Scrapping bonus helps new car sales advance

* First-half registrations up 26 pct

* Growwth rates set to slow in H2 - VDIK

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FRANKFURT, July 2 (Reuters) - New car registrations in Germany, Europe's biggest auto market, swelled 40 percent in June to 427,000 units as motorists continued to cash in on government incentives to junk old cars and buy new ones.

That brought new car sales in the first half of the year to nearly 2.06 million units, a gain of 26 percent to a record even as demand plummets in other major markets, data compiled by the VDIK car importers association showed on Thursday.

"However one should expect that growth in the months ahead will not reach the record levels of the first half," it said in a statement.

Sales in June were again led by the smallest car models, while registrations of premium cars, mid-sized models, sports cars and vans fell at double-digit rates, VDIK said.

The Berlin government launched in February a subsidy that pays motorists 2,500 euros ($3,528) 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.

The upbeat figures from Germany follow news of another sales drop in the U.S. market last month. [ID:nN01515238]

The DJ Stoxx European auto sector index .SXAP was down 2.7 percent by 0826 GMT, the weakest sector among European stocks. (Reporting by Michael Shields)