U.S. July auto sales are on track to rise from a year-earlier tally that was boosted by government incentives, pointing to a gradual recovery in one of the first indicators of consumer demand for the third quarter.

Industry wide auto sales are expected to top the 1 million vehicle mark in July, a single-digit increase from both the previous month and the same month in 2009, according to analysts surveyed by Reuters.

The results come about a week ahead of Chrysler's second-quarter earnings release on August 9, and are likely to be the last set of sales numbers before General Motors Co reports its quarterly financial results and files for an initial public offering in mid-August.

GM is expected to post about a 10 percent increase in July U.S. sales from a year earlier, while Ford Motor Co and Nissan Motor Co <7201.T> are seen posting double-digit gains, industry tracking firm Edmunds.com forecast.

Edmunds sees single-digit sales gains for Chrysler and Honda Motor Co <7267.T>. Toyota Motor Corp <7203.T>, hit by a series of damaging safety recalls early this year, could post a decline of 5 percent, Edmunds said.

This is a slow but sure recovery in auto sales, Ford Motor Co U.S. sales analyst George Pipas said on Friday.

Analysts surveyed by Reuters expected an average annualized sales rate of 11.4 million vehicles in July, up slightly from 11.1 million in June and 11.2 million a year earlier.

Forecasts for July range from 11.1 million to 12.1 million vehicles.

Sales have been in a gradual recovery since the last quarter of 2009, moving a sales rate of 10.7 million in that period to 11 million in the first quarter and then 11.3 million in the second quarter.

But the pace of the industry's recovery has been slow and uneven, with demand for big-ticket items such as cars remaining far below the pre-recession levels. As recently as 2007, automakers sold more than 16 million vehicles in the U.S. market.

Barclays Capital analyst Brian Johnson said that the pace of vehicle sales improved markedly in July, easing some doubts about the strength of a recovery that emerged after slower-than-expected auto sales in the second quarter.

In particular, sales to retail customers appear to explain nearly all the sequential improvement in July, which points to a steady, albeit choppy, recovery in underlying auto demand, Johnson said.

Year-over-year comparisons are tougher in July because the U.S. government's cash for clunkers program that started the last week of July 2009 and ran through the first three weeks of August drove sales sharply higher a year earlier.

Chrysler Chief Executive Sergio Marchionne told reporters on Friday that the automaker expected to reduce its reliance on lower-margin sales to fleet operators like rental car companies and corporations as the U.S. market recovers.

Hopefully in the month of July we will see the stronger market that is indicative of the rest of the year, he said.

Pipas said that he saw as encouraging an increase in the annualized sales rates consecutively from the fourth quarter through the first and second quarters of this year.

Ford expects the seasonally adjusted annualized rate to be higher in July than the 11.3 million second-quarter rate, Pipas said. It also expects retail sales to be a bigger percentage of overall sales in July than in June, snapping a streak of retail share declines from March to June.

Automakers also likely sold a much lower percentage of vehicles to fleets in July, about 15 percent, compared with a rate of roughly 23 percent in the first half of the year.

You can't call a turnaround based on one month, but I would say it's welcome, Pipas said of the expected stronger retail sales results for July.

(Additional reporting by David Bailey and Kevin Krolicki, editing by Matthew Lewis)

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