UPDATE 2-Fund manager Ackman looks to Hong Kong dollar

* Ackman says Hong Kong dollar cheap right now

* Says could be his biggest bet ever (Adds details on the bet)

By Svea Herbst-Bayliss

NEW YORK, Sept 14 (Reuters) - Hedge fund manager William Ackman, best known for selecting stocks, said he was buying the Hong Kong dollar, noting that it could become his biggest bet ever.

The manager of New York-based Pershing Square Capital Management, said he believes that the Hong Kong Monetary Authority will eventually allow the currency to appreciate dramatically against the U.S. dollar.

For nearly three decades the Hong Kong dollar has been pegged to the greenback. The link has pushed up inflation in Hong Kong and increased local debt levels.

The fund manager, who oversees about $10 billion, made the disclosure at the Delivering Alpha conference sponsored by CNBC and Institutional Investor.

Ackman said the Hong Kong dollar is cheap right now and if this bet works out it could become extremely lucrative for his investors. Even a small appreciation of the Hong Kong dollar above its current 7.8 to US$1 exchange rate will pay off big, Ackman said.

Known largely as an activist investor who has prodded U.S. corporations to change, Ackman underscored that he was not pushing a foreign government to do anything here.

"I am looking for hedges, I like asymmetry. And after some digging around, I came up with this."

So far Ackman's biggest winner has been General Growth Properties (GGP.N), the shopping mall operator which emerged from bankruptcy in November 2010. Its stock surged to a 52-week high of $17.43 in July.

Ackman has made his reputation by sticking largely to U.S. stocks, including retailers like JC Penney (JPC.N) and Target Corp (TGT.N).

Nearly 20 years ago another hedge fund manager, George Soros, earned about $1 billion by betting against the British pound. Ackman, who like Soros has become one of the industry's best known and most closely watched managers, said he was not emulating Soros. But the two men play tennis together from time to time and have offices in the same midtown Manhattan building.

(Reporting by Svea Herbst-Bayliss; editing by John Wallace and Richard Chang)