Unit sales at DaimlerChrysler's (DCX) premium division Mercedes Car Group (search) rose 1.3 percent in October to 106,500 vehicles as stronger demand for its core Mercedes-Benz brand offset weaker sales of Smart small cars.

Deliveries to customers in the first 10 months of 2005 rose 0.8 percent to 985,100 units despite a 5.9 percent sales drop in its key German market and stagnant U.S. turnover, the world's fifth-largest carmaker said in a statement on Monday.

The flagship Mercedes-Benz brand has gained sales momentum with a new generation of engines plus brisk demand for the A-Class compact and for new models launched this year, including the M-Class offroader and B-Class compact sports wagon.

Mercedes-Benz sales grew 4.6 percent last month to 94,200 units, bringing 10-month sales to 868,100 vehicles, up 0.4 percent.

More than 37,000 customers have bought a Mercedes-Benz B-Class (search) since the model hit the European market in June, the company said, while October deliveries of the M-Class rose 59 percent to about 9,300 units.

It forecast another boost from its top-line S-Class executive car, which made its debut in September. S-Class deliveries rose by one-quarter in October to 5,100 units.

The new R-Class sports wagon roll-out in the United States got positive feedback, it added.

Free Petrol

Sales of Smart cars fell 18.8 percent in October to 12,300 units but were up 3.2 percent in the first 10 months at 117,000, despite a tough market for the subcompact segment.

"A nationwide campaign that allows customers to refuel free of charge for a year is designed to generate additional demand in the coming months," the company said, referring to a deal for customers in Germany who buy a four-door Smart ForFour by year's end.

DaimlerChrysler shares rose 2.1 percent to 42.46 euros by 1513 GMT while the DJ Stoxx European car sector index gained 1.6 percent, lifted by a weaker euro and lower oil prices.

The Mercedes Car Group includes the Mercedes-Benz, Smart minicar and Maybach luxury limousine brands. It has forecast the number of vehicles leaving its factories will be roughly steady in 2005, while retail sales will rise.

Arch-rival BMW (search) reports October sales on Tuesday.

Designated DaimlerChrysler Chief Executive Dieter Zetsche has run the Mercedes division since September after switching from U.S. arm Chrysler. He will remain in charge of Mercedes after he becomes group CEO at the end of this year.

The division struggled early this year amid model changeovers, a strong euro, quality problems and stiff losses at Smart, which has not made money since its debut in 1998. But third-quarter operating profit at Mercedes rebounded 43 percent.