* UBS bubble index rises 0.06 points to 1.17
* Reading over 2.0 suggests a bubble
* Banks to increase mortgage capital buffers from September
ZURICH, May 3 The rate of increase in Swiss house prices slowed in the first quarter, research showed on Friday, suggesting moves by the government to deflate a property bubble are starting to take effect.
The UBS real estate bubble index rose 0.06 points to 1.17 points, lower than the average quarterly rise of 0.11 points over the past four years.
A reading between 1.0 and 2.0 on the index means the market risks a correction, while anything over 2.0 indicates a bubble.
"The index is flattening out, the increase was not substantial compared to other quarters," said Claudio Saputelli, head of Swiss and global real estate research at UBS.
"... Switzerland has brought in rules on cyclical capital cushions that should put a brake on the markets."
Fuelled by ultra-low interest rates, Swiss house prices have risen more than 20 percent in the past four years, outpacing the rest of Europe.
Authorities sought to dampen the market in February by ordering banks to increase the capital they hold as a buffer for residential mortgages. The measure will take effect in September.
"The picture will be clearer in one or two quarters when the market has had time to react," Saputelli said.
UBS said that while loan applications for homes to rent were still high, falling gross yields, now at just 3.5 percent, were making such investments less attractive.
"We are still fairly far from the bubble zone - the numbers do confirm some overheating, but there is a calming of the markets," the bank said. (Reporting by Martin de Sa'Pinto; Editing by John Stonestreet)
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