* Microsoft introduces “Project Natal”

* Controller-free technology for Xbox 360 game system

* Microsoft integrates Facebook, Twitter into Xbox Live (Recasts; adds Project Natal details, executive comment)

LOS ANGELES, June 1 (Reuters) - Microsoft Corp MSFT.O on Monday offered a glimpse into a future where the Xbox 360 console is the centerpiece of any living room, and games, social interaction and communications are controlled with the wave of a hand.

At a star-studded event at the annual E3 video game conference that drew appearances by Paul McCartney and Steven Spielberg, the company unveiled “Project Natal,” which uses a camera to track a user’s movements via full skeletal mapping. It also recognizes voices and vocal commands.

The technology obviates the need for a controller or remote device to enable a player for instance to drive a car in a game, interact with a character on screen or show pictures and information to other Xbox 360 users over the Internet.

“You are the controller,” Shane Kim, Microsoft’s vice president of strategy and business development for videogames, said in an interview in Los Angeles.

“That’s a very powerful piece of technology -- full body gesture tracking, not just two hands.”

On Monday, Microsoft also said it planned to boost its Xbox 360 gaming console by integrating music-streaming service last.fm, Web social network Facebook and microblogging site Twitter into its Xbox Live online community.

The announcements underscore how the interactive gaming industry, a growing business with estimated annual sales of about $50 billion despite the economic downturn, is looking into ways to attract new gamers while retaining their core audience.

Perhaps with an eye on the economy, Don Mattrick, senior vice president of Microsoft’s Interactive Entertainment Business, said the “Natal” technology can refresh the gaming experience without making consumers buy a new device, which typically costs $250 to $500. Microsoft would also avoid hefty manufacturing and marketing costs.

“We can leap into a new era of interactive entertainment without launching a new console,” Mattrick told reporters.

Kim declined to detail when “Project Natal” games and service will be available, saying only that “it’s not a 2009 thing.”

IN LIVING COLOR

Phil Spencer, the head of Microsoft’s Game Studios, said the technology has been well received by software developers.

“It’s pretty obvious that the controller is not going away, but the ability to augment the gaming experience that people are used to is one of the paths that people will take,” he said.

For now, Microsoft is focusing on beefing up its fledgling Xbox Live service.

Users of Xbox Live will be able to keep tabs on and communicate with friends using popular Internet services such as Facebook and Twitter, without needing to use a computer.

The move broadens Microsoft's goal of transforming the console system -- a distant No. 2 to Nintendo Inc's 7974.OS Wii machine -- into the center of the living room and more than just a game-playing box. That goal is echoed by Sony Corp 6758.T, whose PlayStation 3 console also hosts community and entertainment features as well as game playing.

“This expands the reach of Xbox live,” Kim said. “We have had an effort of making Xbox live a next-generation social and entertainment network.

The event was kicked off by a demonstration of the upcoming version of Viacom Inc's VIAb.N MTV Networks' Rock Band franchise featuring songs by The Beatles. Taking the stage briefly were surviving Band members Paul McCartney and Ringo Starr, and Yoko Ono and Olivia Harrison, widows of John Lennon and George Harrison, respectively.

For more details of Microsoft's event, click twitter.com/MediaFile (Additional reporting by Kemp Powers; Editing by Edwin Chan and Richard Chang)