UPDATE 2-Norway watchdog may block DNB-Sbanken tie-up over mutual funds

* DNB has bid $1.4 bln for Sbanken

* Competition watchdog says it may block takeover

* Watchdog concerned over mutual funds market (Adds timeline in 4th paragraph, detail)

OSLO, June 24 (Reuters) - The Norwegian Competition Authority (NCA) may block a bid by Norway’s largest bank DNB for domestic rival Sbanken, and will extend its review of the planned tie-up until Aug. 26, the watchdog said on Thursday.

While more than 90% of Sbanken’s shareholders have accepted DNB’s offer of 11.6 billion crowns ($1.36 billion), completion of the deal hinges on approvals by the competition regulator, the bank regulator and the finance ministry.

“The authority’s preliminary view is that the transaction may weaken competition in the market for mutual funds. This may lead to higher prices and harm consumers who invest in such funds,” the competition watchdog said in a statement.

The NCA must decide by Aug. 26 whether to allow the acquisition to go through or not. If it wants to block it, the two banks will in turn have a chance to respond before the regulator makes its final ruling by Oct. 7.

If permitted, a takeover of the online-only Sbanken would increase DNB’s share of the Norwegian mortgage market to an estimated 27% from about 24% while also strengthening its asset management business.

“(DNB) is satisfied that the NCA has confirmed that potential competition concerns only relate to (the) distribution of funds and not mortgage loans or other bank services which constitute the main part of (Sbanken’s) operations,” DNB said in a statement.

DNB first offered to pay 103.85 Norwegian crowns per share for Sbanken and later raised the all-cash bid to 108.85 crowns, securing support from the vast majority of owners. The transaction is supported by both boards.

DNB was advised by in-house broker DNB Markets while Sbanken was advised by Arctic Securities.

$1 = 8.5240 Norwegian crowns Additional reporting by Nora Buli, editing by Gwladys Fouche and Emelia Sithole-Matarise