SAO PAULO, BRAZIL - New automobile sales in Brazil fell sharply in October, hurt by a severe retraction in the availability of credit due to the global financial crisis, the national automakers' association Anfavea said on Thursday.

Sales of new cars and trucks slumped 11% from September and 2.1% on a year-on-year basis, to 239,200 units. Sales had jumped 9.8% in September from the previous month, rebounding from a 15% drop in August.

Production of cars and trucks dropped in October for the third month in a row, slipping 1.3% from September to 296,300 vehicles. Output had fallen 4.3% in September and 1 percent in August.

The slowdown follows three years of torrid growth in Brazil's auto market, which has benefited from a credit boom that helped fuel a surge in consumption. But the availability of credit has shrunk dramatically in the last two months as the global financial crisis has spread.

Brazil's government has instructed state-run bank Banco do Brasil to make available a total of 4 billion reais ($1.86 billion) so that automakers' financing units can increase lending and spur sales, Finance Minister Guido Mantega said on Thursday.

"With these resources, we're ensuring that there will be enough financing available for the automobile industry to maintain sales in November and December," Mantega said in a speech to business leaders in Brasilia.

Brazil has become a crucial market for global automakers such as Italy's Fiat, Germany's Volkswagen AG, U.S.-based General Motors Corp and Ford Motor Co. Asian and French manufacturers are also beefing up their presence in Brazil, Latin America's largest economy.

Despite the drop in October, car and truck sales have risen 23.4% so far this year, totaling 2.45 million units. Anfavea expects sales to rise 24.2% this year, to 3.06 million units.

Production is up 17.6% this year, totaling 2.92 million units. Anfavea forecasts a 15% increase in output in 2008, to 3.425 million units.

($1=2.15 reais)

(Reporting by Alberto Alerigi Jr. in Sao Paulo and Ana Nicolaci da Costa in Brasilia, Writing by Todd Benson)