UPDATE 2-Share volumes surge as Vietnam widens trading bands

(Updates with market close, comments)

HO CHI MINH CITY, April 7 (Reuters) - Vietnam's stock market .VNI closed up 1.8 percent on Monday and trading volumes jumped after regulators doubled the share trading band to 2 percent to increase liquidity.

Regulators in communist Vietnam have undertaken a series of measures in recent weeks to try and restore confidence in a market that had tumbled more than 40 percent in the first quarter.

A liquidity crunch caused by the central bank tightening monetary supply in an effort to control double-digit inflation sparked panic among local investors who dominate trading.

"Trading volume has risen but many investors are watching only," said Nguyen Chi Trung, head of brokerage at Ho Chi Minh City-based Viet Dragon Securities Corp. "Later this week the index could rise slightly if some of them sell to get profit after several gains in a row."

The Ho Chi Minh Stock Exchange closed at 542.33 points, its ninth consecutive rise and up nearly 10 percent from its year-low on March 26. Trading volume jumped 42 percent to 2.25 million shares and fund units, with gains in all 153 listed companies.

The main index almost trebled between August 2006 and March 2007, but has this year dropped back to levels last seen 18 months ago.

"Foreign investors are still sitting on the sidelines to wait for clearer direction, especially in terms of government policy to regulate the market," an analyst at Sacombank Securities in Ho Chi Minh City said.

The State Securities Commission, the market watchdog, said last week it would further widen the trading band should markets stabilise.

The band on the main exchange was reduced to 1 percent from 5 percent on March 27 to help halt a slump in share prices.

"Vietnam cannot avoid taking such steps because of the poor knowledge of investors who put money into the market without being able to judge the real value of shares," a retail investor based in Hanoi said. "Without such orders the index could have fallen without stops."

The over-the-counter Hanoi Securities Trading Center .HASTCI rose 2.6 percent to 198.33 points, with volume nearly tripling to 1.64 million shares, after the trading band was widened to 3 percent from 2 percent previously. (Reporting by Ho Binh Minh and Nguyen Nhat Lam; Editing by Lincoln Feast & Ian Geoghegan)