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OSLO, Sept 6 (Reuters) - Norway's state statistics agency raised its forecast for 2007 mainland economic growth to 5.1 percent from an earlier 4.1 percent, but trimmed its 2008 forecast by three-tenths of a point to 3.1 percent on Thursday.
Mainland gross domestic product, which grew 4.6 percent last year, excludes the petroleum industry and ocean-going shipping.
"Following the cyclical upturn that has lasted for the past four years, production continued to increase sharply in the second quarter of this year, albeit at a slower pace than previously," Statistics Norway said in a statement.
"The strong growth in production and employment in the Norwegian economy over the past few years is expected to become more moderate in the time ahead," it said.
The economy is into a fourth year of strong growth, driven by high prices for its oil and gas exports and brisk domestic demand fuelled by low interest rates, which have nonetheless risen for two years from record lows.
Despite the strong expansion, inflation has remained tame, and Statistics Norway trimmed its forecast for the 2007 rise in core consumer prices to 1.4 percent from 1.6 percent and its 2008 core CPI view to 1.8 percent from 1.9 percent.
"Household consumption has risen sharply, but recently there have been signs that the growth in household consumption will become more moderate," the statistics agency said.
The central bank has raised rates 12 times since mid-2005 to 4.75 percent to keep control of the speeding economy and has said it is likely to raise its main rate to 5.25 percent by year-end and to a peak of 5.75 percent next year.
Statistics Norway raised its forecasts for average money market interest rates in 2007 to 4.8 percent from 4.6 percent and next year to 5.5 percent from 5.3 percent and said the gap with euro zone rates would widen and boost the currency.
"They ... see the interest rate differential against the euro area increasing, which will put some upward pressure on the currency," First Securities economist Bjoern Roger Wilhelmsen said. "So this will tighten monetary conditions sufficiently to bring economic growth to more sustainable levels."
The Norwegian crown firmed to 7.8850 per euroby 0859 GMT from 7.8956 just before the forecasts.
RECORD OIL INVESTMENT
Statistics Norway also raised its projections for investment in the key oil and gas industry to new records, to 117.5 billion crowns ($20.20 billion) in 2007 and to 119.2 billion in 2008, from previous projections of 111.4 billion and 82.6 billion.
"These two estimates are the highest estimates ever given, measured in current prices, since Statistics Norway started collecting estimates in 1985," it said.
The estimates are based on announcements by companies, and they tend to rise through the year as companies' plans firm up.
The petroleum sector accounts for about a quarter of overall GDP, more than a third of state revenues and slightly over half of exports in Norway which is the world's fifth biggest crude exporter and Western Europe's biggest natural gas exporter.
(Additional reporting by Wojciech Moskwa, Aasa Christine Stoltz, Ole Petter Skonnord, Joergen Frich and Richard Solem)
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