REFILE-UPDATE 1-Spanish house prices rise at pre-crisis pace in first quarter

(Removes superfluous `7’ in price increase in third paragraph.)

MADRID, June 9 (Reuters) - Spanish house prices rose 6.3 percent in the first quarter of the year, the strongest gain in more than eight years, in one of the clearest signs yet that the property market is starting to stabilise after a prolonged slump.

The year-on-year rise in prices recorded between January and March was the fastest since the third quarter of 2007, according to the data from the National Statistics Institute on Thursday.

New house prices rose 6.1 percent and existing house prices 6.4 percent, the agency said, both also around eight-year highs.

Spain’s housing market bubble burst at the beginning of 2008. Millions lost their jobs as construction virtually halted, causing an economic slump that began to ease only in mid-2013.

The property market has since started to recover, especially in big cities like Madrid and Barcelona. Consumer demand has so far appeared to withstand political uncertainty, with interest rates at historical lows and banks flooded by European Central Bank loans.

Spain faces a repeat election on June 26 after political parties failed to reach a coalition deal after an inconclusive December ballot.

The number of new and second-hand homes being sold has also risen. It reached 35,199 properties in April according to the statistics agency, up 29 percent from a year earlier.

That is the sharpest increase since August 2010, though house sales remains far off the pre-crisis highs of 2007, when over 80,000 houses a month would change hands.

“It’s not only sales of second-hand housing that are growing, it’s new houses too, a clear indicator of the market’s recovery,” Manuel Gandarias, director of research at property website, said in a statement.

Gandarias added that May would be a further test of how consumer demand was holding up amid the political stalemate because many of the transactions occurred in the first quarter and probably stemmed from purchases begun at the end of 2015.

Reporting by Paul Day and Sarah White, editing by Larry King