Updated from 6:30 a.m. EDT

SAN FRANCISCO -- Microsoft ( MSFT) has plenty of reasons to celebrate this month. The company's blockbuster game, Halo 3, topped the September game charts, and sales of its Xbox 360 console came out on top for the first time among the latest generation of hardware consoles.

Up to now, analysts have been betting that over the next 12 months Nintendo's Wii would continue to hold the top spot in the latest-generation console market, with Sony's ( SNE) PlayStation 3 and the earlier-released Xbox 360 in a dead heat for second place. Currently, the Xbox 360 has outsold the PS3.

But industry observers said the latest results indicate that the Xbox 360 console could move ahead of both rivals in the next few months.

The best-selling Halo 3 has shown that it can drive hardware sales and that there is room for another price cut in the console, analysts say. And with more big titles coming during this holiday season and early next year, Xbox 360 console could move ahead of Sony's PS3 in the next few months and even overpower the Wii in the long run.

"This is really Microsoft's holiday season," says Billy Pidgeon, an analyst for research firm IDC. "They have some really great software out there for the console and more coming, a great installed base, high attach ratios (the number of games sold for each console) and great spending online."

The strength of the Xbox 360, which was released in November 2005, was demonstrated in last week's monthly game sales data from The NPD Group, a research firm. Microsoft's biggest release of the year, Halo 3, sold 3.2 million copies in just 12 days after its release. More importantly, Halo 3 helped move game consoles as Xbox 360 sales nearly doubled in September from the previous month.

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