* Freefall in prices now over but divergences across bloc
* Irish prices rise but still 45 pct below pre-crisis peak
BRUSSELS Jan 21 House prices in the euro zone are recovering from the property crashes that nearly bankrupted some members of the bloc, although real estate values in Ireland and Spain remain more than a third below their 2007 peak.
The EU's statistics office Eurostat said on Tuesday that euro zone residential property values rose 0.6 percent quarter-on-quarter between July and September, their second straight quarterly increase. Prices in Ireland rose 4.1 percent, with a 0.8 percent increase seen in Spain.
While the data is more evidence of the euro zone's rebound from recession this year, it also shows the hangover from the property crash that followed the global financial crisis. Ireland's house prices are still 45 percent below their peak.
House prices in the euro zone as a whole are about 5 percent lower than their peak in the second quarter of 2008.
The bursting of property bubbles in Ireland and Spain - and to a lesser extent, the Netherlands and Portugal - erased years of economic growth and left banks with trillions of euros of bad loans. Unemployment also remains at record levels after soaring as the euro zone's crisis unfolded.
Ireland has now exited its EU/IMF bailout programme, while Spain, which took aid for its banks, has said it will not require more.
Meanwhile, an economic recovery is underway across the single currency bloc that counted 17 members at the end of 2013. Latvia, where property prices rose between July and September, joined in January.
Wide divergences in the pace of recovery remain, however and house prices fell in the quarter compared with March-June in Italy and Slovenia, two countries struggling with high debts.
Property has generally retained its value in the wealthier, northern economies of Belgium, France and Germany.
Compared to the same period a year ago, euro zone house prices in the July-to-September period fell at a slower rate than in previous quarters, contracting by 1.3 percent, while Ireland was one of the few countries to show growth.
Unlike non-euro zone Britain, where house price expectations hit a 14-year high in December, the euro zone's weak property market will do little for households that are unable to buy when banks remain reluctant to lend.
Despite record low interest rates, many families are struggling to obtain financing to buy properties and banks are lending less to the corporate sector, wary that the economic recovery remains fragile. (Reporting by Robin Emmott; Editing by Catherine Evans)