Shares of major carmakers rallied on Thursday after better-than-expected sales in the United States and Europe encouraged hopes that a global auto market collapse could be nearing an end.

Car sales in Germany, Europe's largest market, jumped 40 percent in March thanks to government incentives to encourage drivers to ditch old cars for more fuel-efficient models, data showed.

The data followed a smaller-than-expected drop in March U.S. auto sales, adding to signs that the global auto market is stabilizing after a freefall that has pushed some U.S. carmakers to the brink of bankruptcy and other global rivals into mounting losses.

Legislation aimed at invigorating automobile sales in the midst of a deep economic recession is likely to be debated by the U.S. House of Representatives in coming weeks, House Majority Leader Steny Hoyer said on Thursday.

Growing political momentum in favor of a German-style scrappage incentive program, fresh incentives by General Motors Corp and Ford Motor Co, and expanded financing efforts by GMAC, which lends money to many buyers of GM vehicles, all support an improving outlook, analysts said.

Credit financing is slowly improving and, all in all, we think the discussion that the sector is bottoming out and could see a recovery in 2010 is getting a new momentum by the March figures, UniCredit analysts said in a note to clients.

Shares of GM, which has until June to complete a new restructuring under federal oversight that could push it into bankruptcy, jumped 11 percent, while Ford, the only U.S. automaker operating without government aid, rose 5 percent.

The DJ Stoxx European car sector index advanced more than 10 percent, with manufacturers and suppliers such as Fiat, Daimler, BMW and Michelin posting double-digit gains.

In Asia, Toyota Motor Corp gained 5.5 percent and Honda Motor Co surged 11 percent.

NEW CAR SWEETENER

More than 860,000 motorists in Germany have signed up for a state payment of 2,500 euros ($3,336) if they scrap cars over nine years old and buy a new model. The government has extended the program until the end of the year.

The decision to top up funds for the (bonus program) came just in time given that the money originally approved has run out, said Volker Lange, head of the VDIK car importers association in Germany.

No market gets more attention than the United States, where new car sales fell by 37 percent but still beat market expectations.

While 2009 auto sales are off to a weak start, a few recent positives boost the likelihood that sales could improve later this year, Barclays Capital analyst Brian Johnson said.

GM and Ford rolled out new sales programs intended to win over car shoppers worried about losing their jobs by promising to cover loan payments if that happens.

The incentives came as GMAC, which underwrites loans for GM customers, lowered financing costs for dealers and resumed making loans to subprime borrowers.

Meanwhile, India's top car maker Maruti Suzuki, helped by government tax breaks and interest rate cuts, also posted a third straight month of higher sales in March.

But the sector was fragile elsewhere.

Fiat's luxury sports car brand Maserati reported a 30 percent slide in the sales in the first quarter [ID:nSP504070] and South African new vehicle sales plunged by 30 percent in the year to March. [ID:nL235299]

South Korea's Hyundai warned that industry-wide U.S. car sales would fall 35 percent this year and India's largest vehicles maker Tata Motors said domestic sales fell 13 percent in March year-on-year but rose 24 percent from February as incentives kicked in.

(Editing by Dave Zimmemran)

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