* Aug home prices continue to moderate but no signs of sharp drop
* Strong demand still underpinning prices and economic growth
* New home prices +0.2 pct m/m vs July +0.4 pct-Reuters calculation
* Prices +8.3 pct y/y vs July +9.7 pct
* "Turning point" for hottest big markets has emerged - analyst
* Smaller cities still face short-term upward price pressure (Adds quotes, details)
BEIJING/HONG KONG, Sept 18 (Reuters) - China's new home prices rose in August at the slowest pace in seven months and fell or leveled off in more cities as government cooling measures dampened speculation, though there were no signs of a sharper correction that could damage the economy.
Signs of a more stable and less frothy housing market, which is a key driver of economic growth, will be good news for the Communist Party as it prepares for a key meeting next month.
Average new home prices in China's 70 major cities rose 0.2 percent in August, half the pace of the previous month, National Bureau of Statistics (NBS) data showed on Monday.
It's the first time in three years that prices in the 15 hottest markets singled out by the NBS - mostly mega-cities and provincial capitals - have all stopped rising on a monthly basis after nearly six months of intensified controls, analysts noted.
"The turning point for Tier-1 and Tier-2 cities has emerged," Zhang Dawei, a Beijing-based senior analyst at property agency Centaline, wrote in a note.
The Hong Kong-listed shares of Chinese property developers jumped after the news.
China's top three developers by sales, Country Garden , China Vanke and China Evergrande rose 4.28 percent, 0.4 percent and 4.3 percent respectively as of 0300 GMT.
"The data made investors a little more comfortable," said Conita Hung, investment strategy director of of Gransing Securities Co Ltd.
"The market was worried that China might step up tightening if home prices continued to rise Now it was showed that the policies in place are effective and there's less worry over further tightening."
Over the last year, more than 45 major cities have imposed restrictive policies of varying severity to curb fast-rising prices, with some forced into several rounds of tightening measures.
The steps have started to take some heat out of the market as sales growth has slowed from peak levels seen at the start of the year, but buyer demand appeared to be more resilient than expected.
The majority of the 70 cities surveyed by the NBS still reported a monthly price increase for new homes, although the number dropped to 52 in August from 61 in July.
Southern boomtown Shenzhen, which borders Hong Kong, saw prices fall 1.9 percent from a year earlier, the first annual fall since March 2015, while its monthly decline further deepened to 0.4 percent from July's 0.2 percent.
Prices in Shanghai and Beijing rose 2.8 percent and 5.2 percent, respectively, from a year earlier, but were unchanged on a monthly basis.
However, the latest data showed that speculators are continuing to move into smaller cities with fewer controls.
Guilin, a smaller Tier-3 city in southern China's Guangxi Zhuang Autonomous Region, was the top price performer in August, rising 1.1 percent.
New home prices in Tier-3 cities rose a faster-than-average 0.4 percent in August, but slowed from the 0.6 gain percent in July, the NBS said in a note accompanying the data.
Analysts say China's property market may become even more polarized in the next few months as falling inventories of finished homes could drive up prices in smaller cities, especially when the market enters the "Golden September, Silver October" peak sales season.
Nearly a third of Chinese households believe housing prices will keep rising in the coming quarter, despite state moves to cool down the market, a survey by China's central bank showed on Friday.
Analysts polled by Reuters expect China's home prices to rise faster in 2017 than previously estimated despite the flurry of new government curbs introduced this year.
Compared with a year earlier, August new home prices rose 8.3 percent nationwide, decelerating from July's 9.7 percent gain, according to Reuters calculations based on the NBS survey. (Reporting by Yawen Chen in Beijing and Clare Jim in Hong Kong; Additional reporting by Stella Qiu; Editing by Eric Meijer)