UPDATE 1-U.S. auto sales improve 'notably' in June-J.D.Power

* Auto market recovery 'tempered but continued" in June

* June likely to see best selling rate for 2009

DETROIT, June 25 - U.S. industrywide retail auto sales have improved markedly in the first 17 selling days of June from a month ago, indicating a "tempered but continued" recovery in the market, an influential industry tracking service said on Thursday.

J.D. Power & Associates said new vehicle retail sales are expected to come in at 789,400 units in June, which represent a seasonally adjusted annualized rate of 9.2 million units.

This is down 9 percent from a year earlier but marks a 14 percent improvement over May.

Combined with sales to fleet customers such as corporations, government agencies and car rental companies, U.S. June auto sales are estimated at 10.3 million units on the annualized basis, the agency said.

That compares with 9.8 million units in May and would represent the best selling rate for 2009.

"Consumer confidence is improving, and market uncertainty is starting to decline, which has made consumers more willing to take advantage of deals on new vehicles," said Gary Dilts, senior vice president of global automotive operations at J.D. Power.

"In addition, sales incentives including those from Chrysler dealers facing closure have helped contribute to the upswing," Dilts said.

Chrysler, which emerged from bankruptcy this month by selling most of its assets to a new company led by Italy's Fiat <FIA.MI>, terminated franchise contracts with 25 percent of its U.S. dealers as part of a sweeping restructuring.

General Motors Corp <GMGMQ.PK>, which filed for bankruptcy on June 1, hopes to complete a similar sale process to a new company funded by the U.S. Treasury by the end of August.

J.D. Power said it is holding its forecasts for 2009 auto sales steady at 10 million units.