UPDATE 2-Strong Norway house prices fuel August or September rate hike view

(Recasts with economists, background)

OSLO, June 5 (Reuters) - Norway’s seasonally adjusted house prices rose sharply in May, increasing the possibility of a central bank interest rate hike in September or even August to keep a lid on lending, economists said.

House prices rose by 1.1 percent in May from April, real estate industry data showed, while the annual rate of change swung to growth of 1.0 percent, the first positive year-on-year reading since October of last year.

Prices have recently recovered sharply from a 2017 correction that was driven by tighter mortgage regulations, lower population growth and a boom in construction that has since abated.

“The trend is strong after four consecutive months of increases in seasonally adjusted prices,” said Chief Executive Christian Dreyer of Real Estate Norway (REN), which released the data jointly with FINN and Eiendomsverdi.

The central bank in March had said it may raise rates in September, but consumer inflation data has recently lagged expectations, leading some to question the timing of a hike.

The house price data helped put a September hike - or even one in August - back on the agenda, however.

“Strong growth in housing prices argues for a September hike,” Nordea Markets economist Erik Bruce wrote in a note to clients.

SEB economist Erica Blomgren said housing data was becoming an argument to hike rates “sooner rather than later”, while Danske Bank’s Frank Jullum said the latest numbers may even persuade the central bank to hike as soon as August.

With more homes for sale however, the upturn in prices is expected to be more moderate in the time ahead, REN’s Dreyer said.

“We expect continued growth in the year-on-year rate of increase, but not a strong increase,” Dreyer told a news conference.

Unadjusted prices rose by 1.0 percent in May from April. (Editing by Terje Solsvik and Hugh Lawson)