(New throughout, adds details, concerns about volume, analyst comment)
By Brian Ellsworth
CARACAS, March 25 (Reuters) - Investors see Venezuela's new free-floating foreign exchange system as an important step toward improving the country's stretched finances, but economists question whether it can provide enough dollars to kick-start the economy.
The Sicad 2 mechanism opened on Monday and has offered dollars at around 51 bolivars, or eight times the official rate.
After 11 years of currency controls, critics said the launch of Sicad 2 amounts to a devaluation of 88 percent. Fitch Ratings cut its rating for Venezuela debt.
Still, Venezuela's bonds rose on Tuesday, extending gains from Monday as the measures encouraged investors. ID:nL1N0MM0PF]
It remained unclear how much the system will ease dollar shortages that left factories without replacement parts and consumers without basic goods including toilet paper.
"With no real efforts to significantly increase the supply of foreign currency, we suspect that it is another false dawn in Venezuela's battle to overcome a dollar drought," wrote David Rees of research firm Capital Economics in a note.
The measure offers companies such as American Airlines and Colgate-Palmolive a legal alternative to repatriate revenue. But that would imply heavy losses for the companies. Airlines, for example, sell tickets at the official rate but would repatriate funds at the much weaker Sicad 2 rate.
The central bank has not provided details on how much currency has changed hands under Sicad 2, and did not respond to calls seeking comment.
President Nicolas Maduro has said the system will supply 8 to 10 percent of the economy's demand for dollars. That would mean around $60 million per day compared with the $100 million daily volume of a similar market that functioned until 2010 when it was outlawed, according to Russ Dallen, managing partner of Caracas Capital Markets.
"Anything's better than nothing, and at least they've done something," said Dallen, who facilitated transactions in the prior market. "They control it and only they can see what's happening, so it's kind of a black box to us on the outside."
Insufficient supply of dollars would leave importers and businesses struggling to obtain hard currency. That could further pressure the black market rate, which helped drive inflation to 57 percent in February.
In the run-up to Sicad 2, the bolivar strengthened on the black market to reach 59 per dollar on Monday from nearly 90 in recent weeks. On Tuesday it slipped back to 70 bolivars per dollar, according to the widely-watched website DolarToday.com.
DEBTS PILE UP
The Sicad 2 rate is the average of transactions in a trading day, reported by the central bank after the close of operations. That adds a third official exchange rate to the 11-year-old currency mechanism created by late socialist leader Hugo Chavez.
Barclays analyst Alejandro Grisanti said Maduro's comments suggested the system would provide about half the volume he had originally expected.
"We see that as a concern," he said. "Lower FX sales in SICAD 2 would imply a smaller average devaluation, smaller fiscal improvement, a more limited capacity of this new market to stabilize the exchange rate."
For years, the government currency board has declined repatriation requests from foreign companies operating in Venezuela, preventing transfers of revenue to headquarters.
Companies would suffer substantial losses buying dollars at the Sicad 2 rate, especially airlines that must sell tickets in bolivars at the official exchange rate: currently 6.3 bolivars.
The International Air Transport Association says its members have $3.8 billion in revenue frozen by the currency controls. On Tuesday, its representative said the new exchange rate would not apply to its members because they sold tickets at 6.3 bolivars, and at the previous official rate of 4.3.
Chavez set up currency controls in 2003 after an attempted government takeover by the opposition and an oil industry production stoppage that nearly left the country without hard currency.
He maintained that policy even after the government stabilized output and soaring oil prices flooded the country with cash. The situation spawned corruption as well-connected officials bought cheap dollars and flipped them for huge profits on the black market. (Additional reporting by Andrew Cawthorne and Girish Gupta; Editing by Kieran Murray and David Gregorio)