U.S. auto sales jumped to a seven-month high in March led by a 41 percent surge at Toyota Motor Corp <7203.T> after the Japanese automaker offered the steepest discounts in its history to win back sales lost during its recent safety crisis.

Overall, U.S. auto sales jumped 24 percent in March, the best showing since August 2009 when the U.S. government's cash for clunkers incentives caused sales to spike.

Boosted by consumer response to zero-percent financing offers and rebates on most of its lineup in March, Toyota snapped two months of sales declines driven by recalls and a production and sales halt in its largest market.

General Motors sales rose nearly 21 percent from a year earlier. Toyota was second in total sales, while Ford Motor Co ranked third after a nearly 40 percent sales increase.

U.S. sales topped the 1 million vehicle mark in March, which was the strongest monthly result since September 2008 excluding last August.

The strength in the United States was also reflected in sales in Europe and Asia, as temporary government scrapping schemes boosted demand.

Despite the industry's rebound in March, sales remain sharply below recent highs. The U.S. auto industry averaged a sales rate of over 16 million units in the five years to 2008.

Nissan Motor Co <7201.T> U.S. sales rose 43 percent in March from the prior year, putting it ahead of Chrysler in terms of market share for the second time in three months.

Industry executives attributed the U.S. sales rebound in part to incentives, pent-up demand from February when snow storms hit many areas and signs of broader economic stability.

The U.S. sales increase contrasts with March 2009 when the industry was mired in a deep U.S. sales downturn ahead of bankruptcies by GM and Chrysler.

Only Chrysler among the largest automakers posted a U.S. sales decline in March. Chrysler said sales fell 8 percent in March from a year earlier and it planned incentives.

Retail sales were really artificially inflated by huge incentives going on in the marketplace and did not reflect true demand, Edmunds.com analyst Jessica Caldwell said, adding that April would be a better indicator.

Toyota traditionally has spurned deep discounts, but launched unprecedented incentives in March to try to win back customers, including zero-percent financing for five years on top-selling models such as the Camry sedan.

Don Esmond, Toyota U.S. senior vice president for sales, said on a conference call that incentives would be extended beyond April 5, but offered no specifics.

We need a little bit of a kickstart to kind of get the market in our direction and we'll continue, Esmond said. We're not going to walk away from our customers.

Incentives are closely watched by analysts because they are an indication of the pressure on automakers to move inventory by sacrificing profit margins.

Toyota's March incentives increased 46 percent from a year ago, to $2,310 per vehicle, according to industry watcher Autodata. GM's March incentives of $3,174 per vehicle were down 19 percent, and Ford's incentives of $3,035 were down 2 percent from March 2009, Autodata said.

Ford said March sales rose almost 40 percent to 183,783 vehicles and said it had gained U.S. retail market share for the 17th time in the past 18 months.

GM: PRICE WAR IS 'A DEAD-END ROAD'

GM's U.S. sales rose nearly 21 percent overall to 188,546 vehicles in March including brands that are being discontinued, pushing it slightly ahead of Toyota's 186,863 in sales.

GM Vice President of Marketing Susan Docherty said GM incentives for all of its brands averaged $2,800 in March, falling below the industry average for the first time.

Docherty, who has said GM's new sales team is held to tough targets on profitability, said the automaker was not interested in buying market share.

We have been down that road before and know it's a dead end, Docherty said.

Chrysler, now under the management control of Italy's Fiat SpA , extended sales incentives for most of its 2010 model vehicles through May 3 that were set to expire on Thursday including zero-percent financing.

Still, Chrysler incentive spending was down sharply from March 2009, when it had heaped discounts on its vehicles to drive sales in the run-up to bankruptcy.

According to Autodata, Chrysler led the industry with $3,567 per vehicle incentives, but that is down 23 percent from March 2009.

Hyundai Motor Co's <005380.KS> U.S. sales rose 15 percent in March from a year earlier, in line with a forecast the automaker gave earlier this week.

The seasonally adjusted sales rate was nearly 11.8 million, according to Autodata. U.S. auto sales ran at a 10.8 million vehicle rate in January and 10.4 million rate in February.

Influential tracking service J.D. Power and Associates has raised its outlook for full-year U.S. auto industry sales to 11.7 million vehicles, from 11.5 million vehicles.

Toyota estimates U.S. auto industry light vehicle sales of about 11.5 million for the year, while other automakers expect sales of 11.5 million to 12.5 million.

In other markets, auto sales in France and Japan also rose in March, as government incentives boosted demand, while South Korea's Hyundai Motor racked up impressive sales growth despite the end of subsidies in its home market.

(Reporting by David Bailey and Bernie Woodall; editing by Carol Bishopric)

(Additional reporting by James Kelleher, Soyoung Kim, Helen Massy-Beresford and Chang-Ran Kim; Editing by Dave Zimmerman and Richard Chang)

General motors Chrysler Ford Motor Company Toyota