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UPDATE 1-BA-owner IAG says considering making offer for Norwegian

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LONDON, April 12 (Reuters) - British Airways-owner IAG said it is considering making an offer for low-cost carrier Norwegian Air Shuttle, in a deal which would greatly expand the airline group's exposure to budget flying.

IAG said on Thursday that it has acquired a 4.61 percent stake in Norwegian and that it planned to start talks with the airline which included the possibility of a full offer for the company being made.

Norwegian's shares were halted by the Oslo bourse but had earlier risen by 18.3 percent to 212.1 crowns, valuing the company at 8.06 billion Norwegian crowns ($1.04 billion).

"IAG confirms that no such discussions have taken place to date, that it has taken no decision to make an offer at this time and that there is no certainty that any such decision will be made," IAG said in its statement. Norwegian declined to comment.

IAG, formed by the merger of Iberia and British Airways, has used acquisitions to grow in the past, adding Aer Lingus and Spain-based low cost carrier Vueling to its portfolio in 2015.

Fast-growing Norwegian was forced to raise new equity in March to help fund its expansion and cope with higher fuel costs after warning of a larger than expected loss in the current quarter.

The budget airline is trying to crack the transatlantic market by undercutting established rivals but faces pressures to control costs and shore up its balance sheet.

Shares in IAG initially dropped 3.4 percent on the news before recovering to trade up 1.2 percent at 623 pence.

(Reporting by Sarah Young and Terje Solsvik in OSLO editing by Kate Holton)