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The Riksbank is more likely to keep hiking interest rates as house prices rose for a 20th month in the quarter through December, fueling fear of a housing bubble.

With a record 6.9 percent annual growth registered in the third quarter of 2010, which easily erased 2009's deep five-percent recession, Sweden's economy is now swelling at the pace of booming Asian nations.

The main shadow on the Swedish horizon is the country's still ballooning property market, which has led to fears of a real estate bubble.

"That's the risk for the Swedish economy: a correction of the housing market price. This would be negative," Robert Bergqvist, SEB bank's chief economist, told AFP, insisting higher interest rates are needed to keep the housing market from overheating.

Last month the Riksbank hiked its most important key interest for the fourth time since July.

However, higher interest rates hurts the country’s important export industry as the value of the krona increases. Along with the Swiss franc, the Swedish currency has risen in recent months to become the star of the European exchange market.

The average house price rose an annual 4 percent in the three months through December, following a 5 percent gain in the November quarter as reported last month, Statistics Sweden said Tuesday.

The average house price in the December was slightly more than 2 million kronor ($305,000). Swedish household borrowing growth rose 9 percent last year, according to data compiled by Bloomberg.