TOKYO (Reuters) - Sony Corp said it would cut the price of its PlayStation 3 game console by 10 percent in Japan and launch a new model, in a bid to ignite demand in the run-up to the critical year-end shopping season.

The move follows a similar announcement from Sony on its European game operations last week as the Tokyo-based electronics and entertainment conglomerate plays catchup with Nintendo Co Ltd's hot-selling Wii.

The PS3 has lagged the Wii in sales since the devices were launched late last year due to the Sony machine's high price and scarcity of strong game titles.

Following the late afternoon announcement, shares in Nintendo lost gains and closed lower.

Sony said on Tuesday it would lower the price of the PS3 with a 20 gigabyte (GB) hard disk drive to 44,980 yen ($384) from 49,980 yen on October 17.

It will also start selling its 60 GB model at 54,980 yen. Sony has not so far suggested a price for the 60 GB model, but it currently retails for around 60,000 yen.

Besides the price cuts, Sony, which competes with Microsoft Corp and Nintendo in the videogame industry, plans to launch a new PS3 with a 40 GB hard drive at 39,980 yen in Japan on November 11.

That is still 60 percent higher than the 25,000 yen price tag for the Wii.

Although the price of the 40 GB model will undercut the 20 GB machine by 5,000 yen, or 11 percent, the new 40 GB set lacks some functions that the 20 GB model offers, including compatibility with game software designed for the PlayStation 2.

Lowering prices will likely help drive PS3 sales in Japan, but the machine's competitiveness still falls short of that of the Wii, analysts said.

"As underlined by the delay in the "Gran Turismo" launch, there has been only limited progress in addressing the problem of software shortage," Mizuho Investors Securities analyst Etsuko Tamura said.

Sony last month postponed the launch of "Gran Turismo 5 Prologue," the latest installment of Sony's popular in-house racing game, to December 13 from October.

Prior to the announcement, shares in Sony closed up 0.5 percent at 5,820 yen, while Nintendo shares, which closed on the Osaka Securities Exchange after the announcement, ended down 0.5 percent at 62,700 yen.

($1=117.09 Yen)