* CPI rises 1.0 percent in Oct, less than forecast
* Supports case for later rate hike -analysts
* Cheap imported goods a major factor
(Adds analysts, updates markets)
By Walter Gibbs
OSLO, Nov 10 (Reuters) - Norwegian inflation undershot expectations on Wednesday, giving the country's central bank more leeway to encourage a faster economic recovery by keeping interest rates lower for longer.
Consumer prices rose 1.0 percent year on year in October, the country's statistics agency said, up from 0.9 percent in September but shy of a 1.1 percent average forecast from 13 analysts in a Reuters poll.
The Norwegian central bank had projected 1.2 percent.
"Once again inflation surprises on the downside," said Ida Bache, senior economist at Handelsbanken.
"If inflation continues to come in below the central bank's forecast this will be an argument for a further lowering of the interest rate path."
Norges Bank said last month interest rates would likely stay at 2.0 percent until next summer, a half year longer than previously thought, partly due to benign inflation.
Its long-term inflation target is 2.5 percent.
Norway's economy suffered only a mild recession last year amid the global downturn, with GDP contracting by 1.5 percent in 2009, but it has emerged from the slump more slowly than its Nordic neighbours.
The country's non-oil economy grew by 0.5 percent in the second quarter of 2010, confirming central bank projections of a gradual pick-up in domestic growth.
The Norwegian crown weakened to 8.0715 against the euro at 0925 GMT versus 8.0568 ahead of the inflation data, before partly recovering to trade at 8.0660 by 1212 GMT.
"This is only one figure, but it comes in the wake of several months of surprisingly weak inflation, so it confirms that the trend is weaker than Norges Bank believes," said Kjersti Haugland, senior economist at DnB NOR Markets.
"If this lasts, it will delay the interest rate hike decision even further," said Erik Bruce, chief economist at Nordea Markets.
He said several lower-than-expected inflation reports have kept Norges Bank from raising rates as aggressively as intended when it began lifting them from a post-crisis low of 1.25 percent in October 2009.
"It seems like it's the prices of imported consumer goods that surprised the central bank," Bache said.
"The recent numbers we have for manufacturing output and retail sales seem to confirm that activity in the real Norwegian economy seems to be picking up in line with expectations."
In October, electricity prices rose 1.6 percent against the preceding month, and were a main reason behind the monthly increase in the CPI, Statistics Norway said.
(With additional reporting by Camilla Knudsen and Gwladys Fouche in Oslo; Editing by John Stonestreet)