* Rise 7.8 pct in June yr/yr; July seen better - analyst

* New models and better credit availability help (Adds quotes, details, background)

Car sales in India rose an annual 7.8 percent in June, climbing for a fifth straight month and reinforcing the country was one of the few markets where demand has been picking up.

A spate of new models and falling borrowing costs are luring new buyers back after a downturn in the middle of last year when high interest rates, lack of vehicle finance and a slowing economy squeezed demand.

It is a kind of pent-up demand, said Dilip Chenoy, director general of Society of Indian Automobile Manufacturers (SIAM). A lot of sales in the 2-wheeler and passenger car segment is led by new model sales.

Companies sold 107,531 cars in June, compared with 99,741 a year earlier, while motorbike sales rose 16.2 percent to 550,833 units, data from SIAM showed.

Maruti Suzuki (MRTI.BO), the country's top car maker and 54.2 percent owned by Japan's Suzuki Motor Corp (7269.T), which last week reported a 22.6 percent annual rise in June car sales, led the pack. [ID:nBOM515648]

However, sales of trucks and buses, a barometer of economic activity, fell 12.5 percent from a year earlier to 36,193 units, the data showed.

In comparison, U.S. auto sales tumbled 28 percent in June, which was the narrowest decline in nine months. [ID:nN01515238]

In Japan, industry-wide auto sales fell 14.5 percent in June, the ninth straight month of double-digit percentage fall, though the pace of decline has eased from previous months. [ID:nT149234]

SALES SEEN RISING

India's annual budget on Monday is expected to help the auto sector, with its focus on the farm sector aiding tractor sales and higher spending urban schemes spurring demand for buses. It had also lowered factory gate tax on cars.

There is a little bit of recovery happening, said Surjit Arora, auto analyst Prabhudas Lilladher.

July numbers should be better than June... especially in the compact car segment because with no changes in the budget, customers who had postponed purchases in June will now be buying.

The compact segment accounts for about 70 percent of the car market.

Chenoy said the fall in interest rates for car financing was led by State Bank of India (SBI.BO), the country's largest lender, which cut its lending rates twice this year.

However, he said in absolute terms the growth on month to month was small. The flat trend is worrying.

He said a 3-5 percent car sales growth in 2009/10 forecast by SIAM earlier this year was based on two stimulus packages by the government. Currently nothing has changed, he said.

The auto sector stock index .BSEAUTO has risen nearly 49 percent this year, in line with the main BSE index .BSESN. (Writing by Janaki Krishnan; Editing by Ranjit Gangadharan)

Japan India