By Scott Hillis

SAN FRANCISCO (Reuters) - Microsoft Corp said on Monday it is launching a reworked low-end version of its Xbox 360 in a bid to widen the game console's appeal to a broader audience that has flocked to rival Nintendo Co Ltd's Wii.

The new Xbox 360 Arcade costs $280 and comes with five games previously available only for download over the Xbox Live online service. It does not have the hard drive found on more expensive Xbox models, but will have a memory card for saving progress in games.

The Arcade, which goes on sale on Tuesday, replaces the Core model, which carried the same price but didn't include any games or memory storage.

"When we first launched the console, the goal was to initially win the core consumer," Aaron Greenberg, global product manager for Xbox 360, said in an interview.

"As we enter this holiday, it's the right time to shine a spotlight on all the great family games and content we have," Greenberg said.

Microsoft also announced two new games aimed at younger players -- one from Activision Inc based on the "Shrek" animated movies, and one from THQ based on Nickelodeon's SpongeBob SquarePants cartoon character.

The games will cost about $10 each and be sold through Xbox Live, Microsoft said.

"Xbox Live Arcade already has lots of family friendly entertainment but now we're seeing our partners developing this kind of content that won't even be available in retail," Greenberg said.

Additionally, Warner Bros will start selling episodes of its classic "Looney Toons" cartoons over Xbox Live, while Nickelodeon, a unit of Viacom , will sell episodes of several popular shows such as "Blue's Clues."

In September, Microsoft sold 528,000 Xbox 360 units, its best month since last December, as it was lifted by the debut of its highly anticipated game "Halo 3."

Nintendo also had its best month of the year as it sold 501,000 Wii consoles. The Wii has outsold the Xbox 360 and Sony Corp's PlayStation 3 this year due to its low price point and emphasis on simple, easy-to-learn games.

© Copyright 2007 Reuters.