News that European car sales rose for a third consecutive month in August helped lift the mood at the Frankfurt Motor Show, where automakers will showcase green technology they hope will transform the industry.

New car registrations advanced 3 percent across Europe last month, the ACEA industry association said, but noted the rally is being fueled by state incentives that could leave the sector with a hangover once they run out.

The (August) increase, commenced in June after 14 months of downturn, is mainly reflecting the impact of incentive schemes in a number of markets across the EU, ACEA said, noting registrations were down 8.2 percent in the first eight months.

Volkswagen , Europe's biggest carmaker, detected green shoots in the market after a slump triggered by the worst financial upheaval since the Great Depression.

The difficult crisis in the automotive industry is not over yet, but there are increasing signs that the bottom has been reached, VW Chief Executive Martin Winterkorn said at an event late on Monday. The industry can be cautiously optimistic.

Renault and Nissan <7201.T> Chief Executive Carlos Ghosn said last week the financial crisis was over, and predicted the beginnings of a recovery in Europe from the end of 2010.

BMW Chief Executive Norbert Reithofer has said the worst of the downturn is over and forecast sales of premium cars would accelerate in 2011 after an uptick next year.

Positive signals in emerging markets are helping too. India reported a seventh straight month of car sales growth in August. In the same month Russia, which had been tipped to overtake Germany as Europe's largest car market this year until the crisis hit, showed its smallest fall in four months, albeit a 54 percent drop.

Still, the end to state subsidies hangs over the market.

In Germany -- Europe's biggest car market, where registrations leapt 28 percent in August -- a scheme that paid drivers 2,500 euros ($3,659) to scrap their old cars and buy new, greener models has now run out, whereas France has promised to keep its scheme running into 2011.

Industry watchers will be on the lookout at the show for signs of further consolidation following General Motor's decision to sell control of its European unit, Opel, to a group lead by Canada's Magna .

An agreement between China's BAIC and luxury carmaker Koenigsegg to buy GM unit Saab, and Geely Automotive's <0175.HK> bid for Ford's Volvo are other signs of merger activity in an industry plagued by overcapacity.

VW Chairman Ferdinand Piech left open the possibility that Volkswagen, which is in the process of taking over sports car maker Porsche AG

, could acquire further brands, saying a dozen is easier to remember than ten.

Porsche will be the tenth brand in VW's stable.

Amid a reduced turnout at the show, -- with some major carmakers like Japan's Nissan <7201.T> absent altogether -- Opel's new Astra will be one of the main draws among the cars being unveiled for the first time.

As carmakers get ready to meet tough new targets to cut emissions from their fleets, however, the real stars of the show will be green technologies.

France's Renault will show four new electric concept cars, while Hyundai Motor Co <005380.KS> will unveil its ix Metro hybrid concept car and its i10 electric car.

While in the past people looked for horsepower and the number of cylinders to measure a car, people are now looking at fuel consumption and CO2 emissions, VW's Winterkorn said while presenting a new E-Up electric car that could hit the road by 2013.

($1=.6833 Euro)

(Additional reporting by Christian Hetzner; writing by Michael Shields; editing by Simon Jessop and Jon Loades-Carter)