UPDATE 1-Sweden's central bank says housing market serious threat to economy

* Central bank says more needs doing to cool housing market

* Says watchdog should introduce leverage ratio for banks (Adds more central bank quotes, background)

STOCKHOLM, May 24 (Reuters) - Rising mortgage debt is a serious threat to Sweden’s economy while regulators need to introduce tougher measures to strengthen banks against future shocks, the central bank said in its semi-annual stability report, published on Wednesday.

Worries have been growing about Sweden’s soaring housing market with the European Commission warning of the risks of a “disorderly correction” this week.

A rapid fall in house prices would hit consumer spending as well as the banking industry, and contagion could spread across the Nordic and Baltic region.

“Households’ high and rising indebtedness form a serious threat to financial and macroeconomic stability,” the central bank said in statement.

“There are also vulnerabilities in the Swedish banking system and its resilience therefore needs to be reinforced.”

Swedish house prices have doubled over the last decade. Apartment prices have tripled. Household debt levels - in relation to disposable income - are among the highest in Europe.

Developments have been driven by a perfect storm of factors. Sweden has a rapidly growing population driven to a great extent by immigration and has built too little housing for decades.

Swedes also benefit from a hefty mortgage tax rebate - 30 percent - while the rental market is tightly controlled. A real estate tax was abolished in 2008 and generous lending policies mean about half of all households only pay interest on their loans.

Highly indebted households are at risk from an economic downturn and higher interest rates.

A 20-percent house price decline could reduce gross domestic product (GDP) by 2.6 percent, the International Monetary Fund (IMF) estimated recently, and the impact on Sweden’s banks in such a scenario could trigger a crash across the Nordic and Baltic region, the IMF said.

Sweden’s GDP grew 3.3 percent last year.

“There are ... vulnerabilities in the Swedish banking system and its resilience therefore needs to be reinforced,” the Riksbank said.

It called on the Financial Supervisory Authority to introduce a leverage ratio requirement for banks and set it at 5 percent from next year and said this might need to be increased over time.

The 2008 banking crisis led global regulators to introduce a mandatory minimum leverage ratio, or measure of capital to total assets, of 3 percent from January 2018. Some countries such as Switzerland, the United States and Britain have gone further, requiring big banks adopt a ratio of 4 percent or above.

The Riksbank also repeated that it needed a large foreign currency reserve for use in a future banking crisis. (Reporting by Stockholm Newsroom; Additional reporting by Huw Jones in London; Editing by Niklas Pollard and Louise Ireland)