(Adds detail on Japanese companies, analyst quote, shares)
By Madeline Chambers
FRANKFURT, Nov 14 (Reuters) - New car sales in western Europe slipped last month, dashing hopes of a strong late-year rebound, but Japanese and Korean carmakers took market share from their local European rivals, data published on Friday showed.
Brussels-based carmaker association ACEA said October sales fell 0.3 percent in the region, bringing the total number of cars sold in the first 10 months of the year to 12.19 million, a 1.3 percent drop from a year ago.
The main winners were Japanese companies, including Nissan , Mazda and Toyota , as well as Korean rivals Hyundai and Kia .
Their gains in the last year, due to fresh designs geared to European tastes and greater use of diesel technology, have fuelled worries among European makers that they could eventually pose as much of a threat in Europe as in the United States.
Toyota sold more vehicles than Ford worldwide in the third quarter for the first time and may pass the U.S. company, currently ranked number two in the world, for the whole of 2003.
"The Japanese and Koreans had to restructure and adapt and rethink earlier than the others...they have efficient processes and are on top of a wave of new models," said an ACEA spokesman.
Among the Japanese, the biggest gainer was Nissan helped by its new small Micra car, but Toyota is still the largest player and its Corolla continues to be a top seller.
"I think (the Japanese makers' growth) is a trend in Europe, but I doubt they will command the market share of a third that they do in the U.S," said Adam Collins, auto analyst at Commerzbank who cited varying tastes between European markets and less developed local production systems and distribution networks.
By contrast, Europe's top two automakers Volkswagen and PSA Peugeot-Citroen suffered sharp volume and market-share losses as did Ford , struggling to return to profit in Europe.
European auto stocks were up 0.08 percent at 1029 GMT, slightly underperforming the broader market .
SLOW RECOVERY
"This basically flat result seems to point towards a stabilisation of the market, in line with most economic indicators," ACEA said in a statement.
Analysts said despite improved conditions in Europe's biggest economies including Germany and France, consumers are delaying big-ticket purchases as they are still worried about possible job cuts and the spectre of rising interest rates.
Last week the Bank of England became the first of the world's four largest economies to raise rates as global recovery builds although the European Central bank kept interest rates on hold near 50-year lows.
Experts now anticipate a gradual upturn in auto demand in 2004 after a sales drop of about two percent this year, a result of weak economic conditions, subdued consumer sentiment and a dearth of new products.
Flagging demand has taken its toll on carmakers' profits this year which have also been eroded by buyer incentives introduced by companies in a bid to hold up sales.
"There are still a lot of incentives in many countries and although that helps sales to some extent, it is bad for revenues," said a spokesman from ACEA.
Auto sales rose 0.2 percent last month in the United States where profit-eroding buyer incentives have supported demand. While the U.S. economy may provide customers with growing income and jobs to keep vehicle sales healthy, some analysts note the incentives have resulted in a low level of pent-up demand.
Italy's Fiat , in the midst of a turnaround plan aimed at reversing steep losses, failed to show much improvement overall in Europe although the decline in volumes was less steep than earlier in the year. It is banking on a sales boost from its new Fiat Panda and Lancia Ypsilon.
Luxury carmaker BMW and France's Renault made modest gains in October.
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