TOKYO, March 28 (Reuters) - Toyota Motor's ( TM )

global sales dropped 7% in February from a year earlier, hurt by

a heavy decline in China due to Lunar Year holidays and a slump

in Japan after a safety test scandal at its small car unit.

Sales in China - the world's biggest auto market - tumbled

36%. This year the week-long Lunar New Year holiday took place

in February while last year it occurred in January.

China's auto market is also engaged in a cut-throat price

war and Toyota ( TM ) said sales were affected by fierce competition.

For January and February combined, however, the sales

decline in China was a much milder 0.7%, although that was still

less than a 6.4% rise in passenger vehicle sales sector-wide,

according to data from an auto industry association.

While Toyota's ( TM ) U.S. sales for February surged 16% and those

in Europe gained 14%, Japan sales tumbled by a third. Domestic

sales were hit by production stoppages at Daihatsu which also

makes some Toyota brand cars and due to the reputational fallout

from the scandal even though Daihatsu brand vehicles are not

included in Toyota's ( TM ) global sales count.

The small-car unit said almost a year ago that it had rigged

collision safety tests.

Toyota's ( TM ) sales in Indonesia and Thailand also saw

double-digit declines.

Almost two-fifths of the vehicles sold by the world's

largest automaker in February were gasoline-electric hybrids.

Global sales figures are comprised of Toyota brand cars and

those sold under its luxury Lexus brand. Separate figures for

Daihatsu showed its worldwide sales plunged 66% in February.

Toyota's ( TM ) global output for February shrank 2.6% to 737,178

vehicles.