SAN FRANCISCO -The video games industry grew 37% last month on strong sales of the Grand Theft Auto IV game.

However Microsoft ( MSFT) saw sales of its Xbox 360 console lag rival Sony's ( SNE) PlayStation 3.

Meanwhile Nintendo/s Wii console and its handheld DS system bagged the top two spots in terms of overall hardware sales for the fourth consecutive month and continued to outsell rivals, said industry research firm The NPD Group in its monthly report on video games sales.

Take-Two Interactive's ( TTWO) Grand Theft Auto continued to burn the charts bagging the top spot for the second month. The title, which was released on April 29, sold about 1.3 million copies across the Xbox 360 and PS3 systems last month.

So far, the game has generated combined sales of 4.2 million units, making it the year's top-selling title, said NPD.

Take-Two is currently battling a $2 billion hostile bid from its larger rival Electronic Arts ( ERTS). EA has a tender offer open for Take-Two shares at $25.74. Shares of Take-Two closed down 19 cents to $26.56 Thursday.

On the hardware side, Sony sold 208,700 PS3s in May, up from 187,100 units in April, while Microsoft sold 186,600 Xbox 360s last month, down from 188,000 units in April.

The Xbox 360 was released a year before PS3's November 2006 launch but competes closely with the PS3.

Nintendo outsold the two with 675,100 Wiis in May but down from 714,200 units sold the month before.

Earlier this year, Microsoft blamed supply shortages for the lower sales of the Xbox 360. But two months ago, the company said it overcame those problems. Yet it failed to stay ahead of the PS3 and even the release of Grand Theft Auto IV could not coax more buyers towards it.

Among publishers, Sega's Iron Man game ranked seventh on the charts, thanks to consumer interest in the movie.

The only other independent publisher that found a place on the top-10 chart was Activision ( ATVI) with its Guitar Hero III: Legends of Rock game for the Wii. The game ranked eighth with 116,800 copies sold.

Year to date, Guitar Hero III has sold 2.5 million copies compared to the Electronic Arts'-published game Rock Band, which came in at 1.3 million copies. Still the two games are in the top ten titles sold for the year yet, said NPD.

Nintendo's titles such as Mario Kart and the Wii fit game with its recently released Balance Board accessory bagged the second and third spots.

Sales of game devices, software and accessories reached $1.12 billion in May, compared with $816.3 million during the same month, a year ago.

So far, the U.S. video games industry has generated $6.6 billion and is on track to achieve $21 billion to $23 billion in revenue for 2008, said NPD.

Overall sales of games software was up 41% to $536.9 million last month compared to a year ago. Hardware sales rose 34% to $428.6 million last month vs. May 2007.

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