* Unofficial list drawn up by residents show dozens missing
* Runaway train jumped rails, exploded in town
LAC-MEGANTIC, Quebec, July 7 (Reuters) - Canadian police on Sunday raised the death toll from a massive explosion involving a runaway freight train to three and said they expected to find more bodies in the wreckage of a small Quebec town.
The train, which had been hauling crude oil from North Dakota to eastern Canada, derailed and blew up early on Saturday in Lac-Megantic, a town of 6,000 on the edge of a deep blue lake and ringed by forests of pine and birch. There was no driver on board.
It is not clear why the train began rolling down toward the town, or why the crude oil blew up. The train had five locomotives and 72 tanker wagons, each carrying 30,000 gallons (113,000 liters) of crude oil. Four caught fire and exploded.
The blast produced a fireball that mushroomed hundreds of feet into the air and destroyed dozens of buildings in the center of the town.
"Three bodies have been found," police spokesman Michel Brunet told reporters. "People have been reported missing or disappeared but ... we are not going to issue a figure. We know there are going to be more deaths."
Police said late on Saturday they had discovered the remains of one victim.
An unofficial list drawn up by residents and posted on the Internet showed about 40 people were still unaccounted for. The gigantic blast, at about 1 a.m. (0500 GMT) on Saturday, flattened dozens of buildings, including a music bar popular with young people.
Police have declined to comment on reports the number of missing could be anywhere from 40 to 80 people.
About 2,000 of the town's inhabitants were evacuated after the blast.
A BOOM AND FLAMES
"I was sleeping when it happened," said Rene Bolduc, who said he lived within a few hundred yards (meters) of the site of the accident. "There was a boom and the inside of my house turned red with the color of the flames."
Bolduc said he saw people running as the flames towered overhead.
"It felt like the hairs on my arms and face were burning off," he told Reuters.
Lac-Megantic is in the predominantly French-speaking province of Quebec, about 160 miles (255 km) east of Montreal close to the border with Maine and Vermont. The rail line is owned by Montreal, Maine & Atlantic, which said the engineer had secured the train for the night and left.
Two wagons were still burning on Sunday. Around 150 firemen, some from the United States, spent most of Saturday spraying cold water from the lake on five tanker cars they said still posed a serious risk of exploding.
Fire officials said on Sunday they had contained the risk somewhat, and only two tankers were still considered at risk of blowing up.
White vapor still rose from the town center, which police have cordoned off. Photos released by the authorities showed shattered buildings, burning piles of rubble and stumps of burned trees.
Crude oil shipments by rail in North America are rising steadily as pipelines fill to capacity and more and more oil is produced in western regions like Alberta and North Dakota.
There have been a number of high-profile derailments of trains carrying petroleum products in Canada recently, including one in Calgary, Alberta, last month when a flood-damaged bridge sagged toward the still-swollen Bow River. The derailed rail cars were removed without spilling their cargo.
The disaster will focus attention on the merits of TransCanada Corp's proposed Keystone XL pipeline from the oil sands of Alberta to the Texas coast, a project U.S. President Barack Obama is considering whether to approve.
Proponents of Keystone XL, which environmentalists strongly oppose on the grounds that extracting crude from the tar sands generates more greenhouse gas emissions than regular drilling, say shipping oil by pipeline is safer than using rail cars.
Montreal, Maine & Atlantic owns some 510 miles (820 km) of track in Maine and Vermont in the United States and in Quebec and New Brunswick in Canada.
Canadian Prime Minister Stephen Harper is due to visit the town later on Sunday.