* Latvia CPI up 0.4 percent in September
* Latvia CPI annual rise first since September 2009
* Lithuania prices rise 1.8 percent, more than expected
(Adds analyst comment, background, changes slug from LITHUANIA-INFLATION)
RIGA/VILNIUS, Oct 8 (Reuters) - Inflation is re-emerging in the Baltics, with Latvian annual consumer prices rising for the first time in 12 months in September while prices in Lithuania climbed more than expected, data showed on Friday.
The Baltic states have cut spending and wages to fix economic imbalances in response to the economic crisis in the region, hoping for rapid entry into the euro zone in 2014.
That had led to falling demand and deflation, but prices are now picking up again, and two leading banks in the Baltics -- SEB and Swedbank -- have already said that rising prices could be a hurdle to the two countries' euro ambitions.
In Latvia, the worst-hit in the downturn of the Baltic nations, consumer prices rose 0.4 percent in September from the same month a year before, while Lithuania logged annual inflation of 1.8 percent.
Lithuania has seen annual prices increasing since April and Estonia since February.
"The deflation period is over and ahead we will see moderate inflation," said Lija Strasuna, an economist at Swedbank in Latvia.
She said Swedbank forecast that the consumer price index would drop 1.2 percent in Latvia for the whole year, but turn around to inflation of 1.5 percent next year unless the government raises taxes.
Still, a solid recovery across the region with mild inflation would ease the scale of loan defaults for Nordic banking groups like Swedbank, SEB, Nordea and DnB NORD,, which dominate the Baltic banking sector.
Latvia, which had to go to the International Monetary Fund for help during the crisis, is lagging behind its neighbours, and the economy is expected to contract this year by 2 percent, according to the Finance Ministry. Its output shrank 18 percent in 2009.
Lithuania's finance ministry forecasts economic growth of 1.6 percent this year, but the central bank sees only 0.5-1 percent growth.
Latvian prices rose 0.4 percent on month in September, due mainly to clothing, footwear and food, the statistics office said. The price changes where roughly in line with forecasts for a 0.3 percent rise both month-on-month and year-on-year.
Lithuanian consumer prices rose 0.6 percent on the month in September. The rises in CPI exceeded forecasts for an annual inflation rate of 1.4 percent and a monthly rise of 0.2 percent.
Baltic peer Estonia, which is due to join the euro zone in January, saw its CPI rise 0.4 percent in September year-on-year and 0.8 percent month-on-month. (Reporting by Aija Braslina; Editing by Hugh Lawson)