* Auto output so far this year is lowest since 1995
* Industry sees output, exports down a quarter in 2009
* Domestic sales falling faster than expected also (Recasts throughout, adds comment, job losses, byline)
By Michael O'Boyle
MEXICO CITY, March 10 (Reuters) - Mexican auto production fell to its lowest since 1995 in the first two months of the year and the industry expects the U.S. recession could knock down exports and output by as much as a quarter in 2009.
Production of vehicles and light trucks could fall as much as 25 percent this year, Eduardo Solis, the head of The Mexican Automotive Industry Association, or AMIA, told reporters on Tuesday.
Mexico is a major supplier of cars and car parts to the United States and sliding demand from Americans has hit the country's auto sector hard.
Domestic sales are also plunging faster than expected as consumer confidence withers amid signs that the U.S. downturn is driving Mexico into a deep recession.
Auto output fell 38.2 percent to 107,547 units in February as many assembly plants cut shifts and imposed temporary shutdowns to reduce stocks.
The drop followed a 51 percent production slump in January, which Solis said added up to the worst two-month period since 1995, when Mexico was in the throes of a deep recession.
"But back then we had the outlet of foreign commerce and the grave problem that durable goods have in these times is that there is no external market," Solis said.
Auto exports dropped 44.6 percent in February to 77,833 units compared to a year earlier. Domestic sales dropped 29.2 percent during the month, year-on-year, to 61,578.
The auto industry offers some of the best-paying manufacturing jobs in Mexico and troubles in the sector are hurting the broader Mexican economy.
Auto parts makers shed as many as 25,000 jobs in 2008 and as many as 7,000 more auto parts workers lost their jobs in the first two months of the year, said Agustin Rios, head of the nation's auto parts association, or INA.
Mexican consumer confidence is at a record low and analysts expect the economy could contract around 2 percent this year. (Editing by James Dalgleish)