Toyota Motor Corp expects pre-sale orders for the new Prius hybrid to reach 40,000 units in Japan by the time it goes on sale in mid-May, a newspaper reported on Wednesday, a pace that would see it easily overtake Honda Motor's rival Insight model.

Toyota, the world's biggest automaker, sold around 73,100 units of the current Prius in Japan in 2008.

Local newspapers including the Chunichi and Nikkei reported that Toyota dealers in Japan had received orders for more than 20,000 units of the third-generation Prius. Orders are expected to reach 40,000 units ahead of the car's debut, the Nikkei said, citing an unnamed Toyota official.

A Toyota spokesman declined to confirm the reports.

Toyota is bracing for a head-on price battle with Honda's new Insight hybrid, which overtook the Prius in domestic sales in February, when it went on sale.

Hybrid car sales are expected to get a big boost from new tax and cash incentives announced by the Japanese government.

The new Prius, which has a 1.8 liter engine, is expected to carry a price tag of around 2.05 million yen ($20,750), cheaper than its predecessor, which starts at 2.33 million yen and is powered by a 1.5 liter engine.

The Insight hybrid, with a 1.3 liter engine, is priced from 1.89 million yen, the first hybrid car to be sold for less than 2 million yen. Toyota is planning to continue selling the existing version of the Prius alongside the fully remodelled version, reportedly for the same price as the Insight.

Toyota has set a global sales target of 400,000 units in 2010 for the new Prius, which has listed mileage in Japan of 38 km per liter, versus 30 km/l for the Insight.

Honda sold some 18,000 Insights in the car's first month on the market, 3.6 times its monthly sales target of 5,000 for the model.

($1=98.79 Yen)

(Reporting by Yumiko Nishitani and Chang-Ran Kim; Editing by Joseph Radford)

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