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UPDATE 2-BA-owner IAG says considering making offer for Norwegian

(Adds Norwegian statement, background)

LONDON, April 12 (Reuters) - British Airways-owner IAG said it is considering making an offer for Norwegian Air Shuttle, a low-cost carrier worth about $1.2 billion, in a deal that would greatly expand the airline group's exposure to long-haul budget flying.

Norwegian's shares surged more than 35 percent on the news.

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 making a full offer.

"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's shares, temporarily halted after the IAG news, leaped 39 percent to 250 crowns when they resumed trading, valuing the company at 9.5 billion Norwegian crowns ($1.22 billion).

IAG, formed in 2011 by the merger of traditional flag-carriers British Airways and Iberia, has under CEO Willie Walsh recently embraced budget flying, buying Spanish budget airline Vueling in 2015 and setting up its own long-haul low-cost carrier last year.

Norwegian meanwhile has been the trailblazer of low-cost long-haul flying in Europe, undercutting rivals on trans-Atlantic ticket prices, but expanding at a rate which has left it under pressure to control costs and shore up its balance sheet.

Last month it raised $168 million in a share sale after warning of a larger than expected first-quarter loss.

Norwegian said in its statement on Thursday that it had no prior knowledge of IAG's actions, but welcomed the investment.

"Norwegian believes that IAG's interest in the company confirms the sustainability and potential of our business model and global growth," it said.

Shares in IAG initially dropped 3.4 percent on the news before recovering to trade flat at 615 pence.

IAG's announcement is the latest sign of interest in a new round of consolidation among airlines.

Germany's Lufthansa and easyJet expressed interest in Italy's struggling Alitalia this week.

Ryanair last month agreed to buy a majority stake in a new Austrian leisure airline founded by Formula One former champion Niki Lauda. ($1 = 7.7844 Norwegian crowns) (Reporting by Sarah Young, additional reporting by Terje Solsvik in OSLO and Victoria Bryan in BERLIN, editing by Kate Holton and Adrian Croft)