UPDATE 2-U.S. January video game sales hit $1.18 bln

(Adds detail of earlier report in paragraphs 13-14)

By Scott Hillis

SAN FRANCISCO, Feb 14 (Reuters) - U.S. sales of video game hardware and software were $1.18 billion in January, with Nintendo Co Ltd's (7974.OS) Wii console keeping a slim edge over rivals amid ongoing supply constraints.

Overall sales fell 6 percent, partly due to January 2008 covering a four-week period, compared with a five-week period for the same month a year ago, NPD said, adding that sales were up 18 percent on an average weekly basis.

During the month, Nintendo sold 274,000 Wiis, Sony Corp (6758.T) sold 269,000 PlayStation 3 machines and Microsoft Corp (MSFT.O) sold 230,000 Xbox 360 consoles, NPD said.

On an unadjusted basis, hardware sales fell 25 percent to about $378 million while software sales rose 11 percent to top $610 million. Accessory sales fell 4 percent to $191 million.

"Given the huge number of hardware systems sold in December, inventory shortages could be the biggest contributor to the softer-than-expected sales," NPD analyst Anita Frazier said in the report.

Nintendo and Microsoft Corp (MSFT.O) have both said booming demand for their systems over the holidays created shortages at the start of this year.

"We had effectively had no stock into market in that time period because we pulled all the stops to move production into the peak holiday time period," Nintendo of America President Reggie Fils-Aime told Reuters.

Nintendo planned to increase Wii shipments to support the launches of big games like "Super Smash Bros Brawl" and "Wii Fit" coming out over the next couple months, Fils-Aime said.

"We have confidence as we look towards the future because as we put stock into the market, it continues to sell. With the Wii, it continues to be almost instantaneous," Fils-Aime said.

As for the latest PlayStation, Jack Tretton, head of Sony Computer Entertainment America, said in a statement: "Coming off a great holiday sales season we see strong momentum behind PS3 in 2008, and feel confident about the year ahead."

Microsoft, following up on remarks that Xbox marketing chief Jeff Bell made to Reuters on Wednesday that the company had "misjudged" demand, said it expected to overtake Sony's PS3 sales again as it boosted Xbox supply in the coming weeks.

"We expect to be pinched through February and to reach equilibrium on supply and demand in the March timeframe," Microsoft spokesman David Dennis said.

Earlier on Thursday, market research firm iSuppli said it expected Sony to double the PS3's global installed base this year, posting the strongest growth of any console and narrowing the gap with rivals.

Worldwide PS3 sales are expected to be 10 million units this year, compared with 12.2 million units for the Wii and 7.5 million units for the Xbox 360, iSuppli said.