* Programme to run on voluntary basis
* Proposed reduction in spreads milder than earlier signals
* Bank shares trade higher, OTP Bank outperforms local index (Adds detail, analyst comment, market reaction)
BUDAPEST, May 19 (Reuters) - Hungary's central bank launched a set of measures on Friday to curb mortgage borrowing spreads and boost competition among local lenders, it said, announcing a milder proposed reduction than initially signalled.
After years in the doldrums, Hungary's new mortgage market is on course to expand at the fastest pace since the global financial crisis, fuelled by strong economic growth, rising wages and a recovery in the housing market.
The central bank, led by Governor Gyorgy Matolcsy, a strong ally of Prime Minister Viktor Orban, has been in talks with banks for months about the scheme, which could make it cheaper for Hungarians to borrow ahead of an upcoming election year.
Central bankers have complained that banks in Hungary, about half of which are foreign-owned, charge much higher premiums on Hungarian borrowers than elsewhere in central Europe.
The voluntary scheme, to be launched from June 1, will limit the spreads applied to mortgages certified by the central bank to 350 basis points.
That appeared to be a retreat from initial proposals flagged by central bank Deputy Governor Marton Nagy in March, who then said a 250 to 300 basis point spread would be desired instead of the current 450 to 500 basis points.
"In its current form the news is mildly positive, given that there had been talk of a 2.5 percentage point cap earlier," said analyst Monika Kiss at brokerage Equilor.
Fees applied to the issuance and pre-payment of mortgages will also be capped, the central bank said.
At 0905 GMT, shares in OTP Bank, central Europe's largest independent lender, traded 1.4 percent higher at 8,872 forints, outperforming the blue chip index, which gained 0.6 percent. Smaller rival FHB gained 1.7 percent.
Banks can opt into the central bank's scheme of so-called certified mortgages, which meet a list of standardised criteria, it said.
Only mortgages with fixed rates for 3, 5 and 10 years or the entire lifetime of the loan will qualify for the scheme, the central bank said. It will launch a website in September where borrowers can compare mortgages that qualify for the programme.
The central bank also hopes more borrowers will consider refinancing their mortgages with cheaper alternatives under the scheme. (Reporting by Gergely Szakacs and Sandor Peto; Editing by Elaine Hardcastle)