* Bourse starts trading after 3-year delay
* Only 1 firm listed so far, 2 more plan IPOs
* Potential for high returns, but risks seen
By Prak Chan Thul
PHNOM PENH, April 18 (Reuters) - After a string of false starts, Cambodia's stock market finally started trading on Wednesday, marking a significant step forward for an impoverished country blighted by corruption and scarred by decades of civil war.
Money was banned under the brutal rule of Pol Pot's Khmer Rouge regime that tore Cambodia apart between 1975 and 1979.
But on Wednesday, traders were reaping fast gains as the price of the sole listed firm, the Phnom Penh Water Supply Authority (PPWSA), jumped 50 percent in the inaugural session.
"Today marks the birthday of Cambodia's securities market, the day that we moved forward in a big important step in Cambodia's financial sector and a historic day for Cambodia," Finance Minister Keat Chhon said at the opening ceremony of the Cambodia Securities Exchange (CSX).
Keat Chhon said two more IPOs would take place later this year for state-owned Telecom Cambodia and Sihanoukville Autonomous Port. Several private companies had also shown interest in listing, he said.
Brokers and would-be investors say CSX can overcome its one-company launch and help to boost transparency in state enterprises, spurring more growth in one of Asia's smallest economies.
The privileged few Cambodians with money to invest seem confident about the bourse's prospects, despite a three-year delay and a lukewarm response from local companies.
"We want to buy shares, sell them right away in one or two months to make profits," Lim Pisal, 32, a manager of a local construction company.
"People before just left their money alone, but with this market, they can invest and the water company can also invest more too."
The launch of the new stock market is similar to that in neighboring Laos, which started last year with two listed firms and five more preparing to sign up within three years.
Both bourses are operated as joint ventures with Korea Exchange, Asia's fourth-largest bourse operator.
But while there is potential for high returns in emerging frontier markets, there are inherent risks, as seen in Vietnam where some investors were burned after steering a rollercoaster course when its first stock market was launched in 2000.
The lack of liquidity in the Cambodian market, with only one listed firm, is a considerable setback.
"The risk is that the price can down as well as up ... Even if you want to sell, you may not be able to move large positions," said Morten Kvammen, director of SBI Royal Securities which is underwriting for Sihanoukville Port.
He said the market would have bigger advantages for local investors and foreigners would take a cautious approach in the early days.
Joseph Hoess, Bangkok-based director of frontier market fund Dragon Capital, acknowledged the current limitations but was bullish about the bourse's future and encouraged by the transparency and management of PPWSA, the first listed firm.
"If you believe that Cambodia will continue on its same growth path, will continue to modernise and create wealth - which, in our opinion, it will - then the capital market will expand and the market's liquidity risk will diminish," Hoess told Reuters in an e-mail.
Some investors remain concerned about corruption, an unclear regulatory framework and the use of the riel currency for trading on the bourse.
Ninety percent of deposits and credits in Cambodia's banking system are in dollars, but the central bank wants to be more independent in terms of its currency, despite concerns from investors about bureaucratic delays and currency fluctuation between transactions and payments.
"It's a lot of risk investing here," said an American investor, who asked not to be named.
"A lot of investors are unhappy about this, it will not help and in the future, they're going have to change that."