* Raises 1.3 bln crowns in share sale at 155 crowns/share
* Shares sold at 9.7 pct discount vs Tuesday's close
* Warns of larger-than-expected Q1 loss
* Aims to expand capacity by 40 pct in 2018 (Adds comment, updates shares)
OSLO, March 21 (Reuters) - Norwegian Air has raised 1.3 billion Norwegian crowns ($168 million) in a share sale to help fund its expansion and cope with higher fuel costs after warning of a larger-than-expected quarterly loss.
The budget airline is trying to crack the transatlantic market by undercutting established rivals, but it faces pressures to control costs and shore up its balance sheet in the face of competition.
Its fate rests on the still unproven strategy of adapting the success of low-cost short-haul travel to long-haul routes. A share price decline of more than a third over the past year suggests some investors have doubts.
The company said on Wednesday it had sold shares at 155 crowns each, a 9.7 percent discount to Tuesday's closing price. At 0920 GMT, the stock was down 3.2 percent at 166.2 crowns.
Norwegian Air said it could raise 200 million crowns more in an issue for investors that did not take part in the private placement. That would take the total of new shares issued to 9.67 million, a 27.6 percent increase from before the placement.
"The results of the share issue show investors have enormous confidence in the company. And they should not, because Norwegian Air is losing an enormous amount of money," said Karl-Johan Molnes, chief analyst at brokerage Norne Securities.
Norwegian Air warned late Tuesday of a wider-than-expected first-quarter loss, and said it would look to raise cash amid higher oil prices and fluctuating currencies.
The airline said its first-quarter pretax loss would come in at 2.6 billion crowns, versus a 1.8 billion crown loss in the same period last year, and fuel expenses were 12 percent higher than anticipated so far this year.
By comparison, Norwegian Air had an equity market value of 6.2 billion crowns prior to the share issue.
While the January-March revenue projection of 7.1 billion crowns was almost in line with the 7.24 billion estimated by analysts, according to Thomson Reuters Eikon data, the pretax loss was 550 million crowns bigger than expected.
Molnes, who has a "sell" rating on the stock, said Norwegian Air should dismantle the long-haul business because it could not replicate the low-cost model that can work on shorter routes.
Long-haul customers are mainly high-paying business-class customers, while Norwegian Air is focusing on economy customers, he said. "They need to dismantle it very quickly," he said.
To further help its finances, Norwegian Air will review options, including a change of ownership, for its customer loyalty program, which has more than seven million members and is expected to grow to nine million by the end of the year.
The airline is massively expanding its transatlantic network to win market share, with routes between Canada and Europe starting in July. It recently launched flights from Britain to Argentina, and will also fly within the south American country.
The company plans to raise its capacity by 40 percent in 2018.
It is also in talks to sell up to five Airbus 320neo aircraft, currently leased to HK Express.
($1 = 7.7290 Norwegian crowns) (Additional reporting by Joachim Dagenborg; Editing by Biju Dwarakanath and Mark Potter)