FRANKFURT - Europe's top carmaker, Volkswagen AG, expects 2010 to be a tough year despite signs of market improvement and said it remained optimistic it would develop better than the market.

There are clear signs of a revival on the overall passenger car market in many parts of the world, group sales head Christian Klingler said in a statement on Friday.

The Wolfsburg-based company said demand for its core VW brand rose 27 percent in the first three months of this year.

Group vehicle sales were up 24.6 percent in that period.

Nevertheless, we still expect this to be a tough year, Klinger said.

However, the positive trend so far strengthens our optimism about developing better than the market, he added.

The European car market also showed strong figures.

New car registrations in the European Union rose 10.8 percent in March, that month's biggest growth in years, helped by one extra working day as well as resurgent demand in the four biggest markets outside of Germany.

According to statistics from industry group ACEA, new registrations soared to 1.64 million vehicles, eclipsing the absolute figure from March 2008.

Despite the strong figures, analysts and executives warn that the clock is ticking on volume carmakers like Volkswagen.

While premium brands like BMW expect to see a gradual improvement in underlying demand over the coming months, the floor is expected to drop out beneath the feet of mass car brands once a host of government scrapping incentives gradually expire as the year draws on. (Reporting by Nicola Leske; Editing by Michael Shields)