UPDATE 3-Recalls, weaker economy hurt US toy sales in 2007

(Adds detail on infant and preschool toy sales)

NEW YORK, Feb 12 (Reuters) - U.S. toy sales fell slightly in 2007 as the industry suffered from negative publicity surrounding the recall of millions of China-made playthings and a weakening economy, according to data released on Tuesday by market research firm NPD Group.

U.S. toy sales fell about 2 percent to $22.1 billion from $22.6 billion in 2006. The biggest declines were in dolls at 8 percent, while sales in the infant and preschool category and the outdoor and sports category each fell 5 percent.

Despite the decline, the infant and preschool category was still the top seller in 2007, NPD said.

The toy industry was already hard-pressed to duplicate a surprisingly strong 2006 and growing financial strains on consumers compounded the issue of children increasingly abandoning toys for electronics such as MP3 players, cell phones and video games, Needham & Co analyst Sean McGowan said.

"Although toy sales are typically more resilient in uncertain economic times than other categories, the reality is that consumers face a wide and growing number of challenges," he said.

Industry leader Mattel Inc (MAT.N: Quote, Profile, Research, Stock Buzz) and rival Hasbro Inc (HAS.N: Quote, Profile, Research, Stock Buzz) each saw some weakness in their domestic results, despite posting better-than-expected fourth-quarter profits.

Last month, Mattel, which recalled millions of toys last year due to safety concerns and lead paint, said its gross U.S. sales fell 3 percent.

Hasbro, the second-largest U.S. toy maker, said on Monday that operating profit at its North American segment fell 22 percent during the quarter.