* Canadian police say death toll now one, will rise
* Runaway train jumped rails early in morning
* Transporting crude oil from North Dakota to eastern Canada
* Disaster could figure in debate on Keystone XL pipeline
LAC-MEGANTIC, Quebec, July 6 (Reuters) - A fast-moving, driverless train hauling tankers of crude oil derailed and exploded into a sky-high fireball in the middle of a small Canadian town early on Saturday, destroying dozens of buildings and killing several people.
The disaster took place soon after 1 a.m. (0500 GMT) when the runaway freight train with 72 cars and five locomotives hurtled into Lac-Megantic, a lakeside town of about 6,000 in the province of Quebec, and left the tracks.
Police spokesman Guy Lapointe said one person had died, and that toll would rise, but he declined to comment on media reports that anywhere between 40 and 80 people were missing.
"We have already confirmed one death and we expect there will be others," he told a news conference. "We also expect that the number of people reported missing will be greater than the final death toll."
Crude oil shipments by rail have become increasingly popular in North America as pipelines fill to capacity and more and more oil is produced in western regions like Alberta and North Dakota. But accidents on this scale are rare.
Four of the cars - which each carried 30,000 gallons of North Dakotan crude oil - caught fire and blew up in a fireball that mushroomed many hundreds of feet into the air.
It destroyed dozens of buildings, many of them totally flattened, included stores, a library and the popular Musi-Cafe music bar, eyewitnesses said. The town center was crowded with weekend partygoers at the time.
Lapointe said it was hard to calculate the number of possible victims because the area was still too dangerous for police to examine properly. Some people had been reported missing more than once, and some were nowhere near the town.
The blast ruptured a water main, creating a shortage of drinking water, forcing the town to bring in special tankers.
The center of town remained blocked off, but from the air, it was clear that many buildings had been reduced to little more than piles of bricks and wood. Residents' photos showed the burnt out hulks of cars next to smashed houses.
After the blast, burning crude spilled into the storm sewers and rose up through street manholes, setting buildings on fire, the head of the rail company that ran the train told Reuters.
Edward Burkhardt, chairman of Montreal, Maine & Atlantic Railway, said an engineer had parked the train some distance from the town a few hours before the disaster.
"He claims he set the brakes on all five of the engines. He also claims he set the brakes on a sufficient number of cars on the train," he told Reuters in an interview.
Officials said they had few reports of injured victims, suggesting that people caught up in the blast either died on the spot or managed to escape. One woman told Radio-Canada that she had been unable to contact around 15 of her friends.
Stunned town residents cried in the streets as the impact of the blast sank in. Some hugged each other for comfort.
The rail tracks pass next to the Musi-Cafe, which is popular with young people. Eyewitness Yvon Rosa said he had just left when he saw the train speeding into the middle of the town.
"I have never seen a train traveling that quickly into the center of Lac-Megantic," he told Radio-Canada, saying he watched as the train careened around a bend. "I saw the wagons come off the tracks ... everything exploded. In just one minute the center of the town was covered in fire."
Residents said they had heard five or six large blasts. More than 21 hours after the derailment, one car was still burning and firefighters, some of them from the United States, were still spraying cold water from the lake on five unexploded tanker cars they said posed a particular danger.
CENTER OF TOWN 'ALMOST DESTROYED'
Police imposed a 1/2-mile (1-km) security zone around the blast and evacuated a total of about 2,000 people from their homes.
"When you see the center of your town almost destroyed, you'll understand that we're asking ourselves how we are going to get through this event," a tearful Town Mayor Colette Roy-Laroche told a televised news briefing earlier in the day.
The Canadian Transportation Safety Board, which probes all accidents, said it was looking for the train's "black box" data recorder.
Lac-Megantic is part of Quebec's Eastern Townships region, an area popular with tourists that borders both Maine and Vermont. Quebec is a predominantly French-speaking province in the eastern half of Canada.
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.
The debate over shipping oil by rail is becoming increasingly topical as U.S. President Barack Obama decides whether to approve TransCanada Corp's proposed Keystone XL pipeline from the oil sands of Alberta to the Texas coast.
Backers of Keystone XL - a project that environmentalists strongly oppose - say transporting oil by pipeline is safer than using rail cars.
There have been a number of high-profile derailments of trains carrying petroleum products in Canada recently, including one in Calgary, Alberta, last week when a flood-damaged bridge sagged toward the still-swollen Bow River. The derailed rail cars were removed without spilling their cargo.