UPDATE 1-Apple's iTunes grows to No. 2 U.S. music retailer

(Recasts first paragraph, adds details on music sector)

NEW YORK, Feb 26 (Reuters) - Apple Inc's (AAPL.O: Quote, Profile, Research, Stock Buzz) iTunes digital media store edged out Best Buy Co (BBY.N: Quote, Profile, Research, Stock Buzz) and Target Corp (TGT.N: Quote, Profile, Research, Stock Buzz) to become the second-largest U.S. music retailer, behind Wal-Mart Stores (WMT.N: Quote, Profile, Research, Stock Buzz), according to data released on Tuesday from tracking firm NPD Group.

Based on 2007 sales, legal music downloads now account for 10 percent of music acquired in the United States, but the increase failed to offset a decline in physical CD sales, NPD said.

The amount of music purchased by consumers rose 6 percent from a surge in digital music sales. But actual spending rates across the industry declined by 10 percent due to lackluster CD sales, dropping from about $44 per capita to $40 among Internet users.

About one million consumers stopped buying CDs in 2007, according to NPD.

The iTunes store now has more than 50 million customers and has sold more than 4 billion songs, Apple said in a separate statement. (Reporting by Michele Gershberg and Kenneth Li; Editing by Lisa Von Ahn, Phil Berlowitz)