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German car sales bounce back in July

* July registrations up 6.8 pct -KBA

* Seven-month registrations up 3 pct -KBA

* German sales momentum still discount-driven -analyst

* German rebound contrasts French decline (Adds official sales data, analyst's comment and background)

By Andreas Cremer

BERLIN, Aug 4 (Reuters) - Car sales in Germany bounced back in July, posting the second-highest monthly gain this year and suggesting a further pick-up in second-half demand in Europe's biggest auto market.

Registrations, up 6.8 percent at 270,249 cars, were powered by demand for premium models and sport-utility vehicles with Porsche, Chrysler's Jeep and BMW among the top-selling brands, Germany's Federal Motor Transport Authority (KBA) said on Monday.

The increase last month, the highest since January's 7.2 percent gain, extended the rise in deliveries in Germany in the year to date to 3 percent or 1.81 million autos, KBA said, confirming a Reuters story.

"Germany is very much back on track in terms of volumes," said Jonathon Poskitt, head of European forecasting for LMC Automotive. "The July result is certainly a positive development, reflecting a solid economic backdrop and generally improving consumer confidence."

In June German car sales fell 2 percent because the same month a year earlier had one more working day, slowing the half-year gain to 2 percent or 1.54 million autos.

However, Poskitt cautioned that discounts continue to fuel sales in Europe's key market and the region as a whole, eating into carmakers' profit margins and casting doubt on the strength of the recovery.

"Incentives have been a feature in that market, and Europe more generally, for some time and we would not expect that to change greatly any time soon given the still relatively fragile market environment in the region," he said.

Europe's car industry endured a six-year slump in demand, with sales falling to their lowest level in two decades in 2013 as austerity-hit consumers cut back on expensive purchases, but the market has gradually returned to growth.

The rebound in Germany contrasts with a drop in France, Europe's third-biggest national market, where light vehicle registrations fell 4.3 percent to 143,777, paring the year-to-date gain to 1.7 percent.

With auto sales in the region having risen for 10 straight months, LMC has predicted "more slow and steady growth" for the remainder of 2014, with Germany predicted to grow 3-4 percent on last year's 2.95 million deliveries.

(Editing by Louise Heavens and Greg Mahlich)