Fiat's Punto model has been popular

Italian car sales climbed 7.3% largely due to a tax break, with Fiat sales up 5.7%, helped by the Grande Punto model.

The figures show Fiat's car division is recovering after five years of losses.

But overall a continuing fall in major markets pushed European car sales down 1.6%, even though sales in eastern Europe rose considerably.

'Stagnant'

The European Automobile Manufacturers' Association, which compiles data from 27 member states, said it saw the overall decline as a reflection of the continued downward trend in western Europe.

Despite the rise in eastern Europe of 11.1% this was not enough to counter the fall elsewhere.

"Car demand in western Europe is stagnant" said Italian think tank Centro Studi Promotor. German car sales dropped 11.1%, and France saw car sales drop by 2.8%.

French firm Renault saw sales fall 8.4% while Volkswagen, Europe's largest car firm by market share, saw sales fall 5.4%.

The most dramatic drop for May was for US firm GM, whose sales fell nearly 9%.

Other firms posting positive results included PSA Peugeot, whose sales rose 2.8%.

DaimlerChrysler added 2.4% and BMW gained 5.6%.

Small model

For many firms, smaller car models - such as Fiat's Punto - have been a way to boost sales.

Citigroup analyst John Lawson, who said Fiat had been helped by continued "strong sales" of the Grande Punto, forecast "continued resilience" ahead.

In separate news, Renault said it was looking into making a low-cost car for emerging markets, following reports in Le Figaro.