UPDATE 1-Daimler's Mercedes brand sees sales drop in 2008

* Mercedes-Benz Cars volume falls 2.3 pct in 2008

* Smart sales up, Mercedes-Benz and Maybach slide

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FRANKFURT, Jan 8 (Reuters) - A collapse in global car markets in the final quarter of last year saw volumes at Daimler's (DAIGn.DE) flagship Mercedes-Benz luxury brand decline 5.4 percent in 2008, the company said on Thursday.

A painful 18 percent drop in December meant the brand's sales fell to 1.12 million vehicles throughout the year, putting it closer and closer to smaller rival Audi of Volkswagen (VOWG.DE). [ID:nL8112663]

Demand could get a much needed boost this year from the popular E-Class full-sized saloon, which is expected to make its public debut at the North American International Auto Show in Detroit next week.

Daimler's diminutive, low-emission Smart brand increased its volumes by 34 percent to 134,800 units in 2008 thanks to a strong debut in the United States -- now the brand's third-largest market after Italy and Germany.

Nevertheless, it could not offset weakness at its far larger sister brand, which pulled sales at Mercedes-Benz Cars premium division down 2.3 percent to 1.26 million vehicles last year.

Sales at Daimler's ultra-luxury Maybach marque fell to 300 cars last year from about 400 in 2007, the company added.

(Reporting by Christiaan Hetzner)