UPDATE 1-Hong Kong Mercantile Exchange launches gold futures

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HONG KONG May 18 (Reuters) - The Hong Kong Mercantile Exchange (HKMEx) launched a gold futures contract on Wednesday, hoping to cash in on explosive investment demand for gold from mainland China.

The front-month contract rose half a percent from the open to $1,493.6 an ounce by 0916 GMT, with volumes of 1,694 lots of 32 ounces per lot.

The gold contract is priced in U.S. dollars and delivered physically in Hong Kong.

One dealer said strict Chinese regulations kept interest muted.

"So far there is not much interest in the product," said Peter Fung, head of dealing at Wing Fung Precious Metals in Hong Kong.

Chinese investors are not allowed to trade futures offshore, and investors elsewhere have access to COMEX gold futures, a key gold futures market, nearly 24 hour a day. But HKMEx gold may gain traction if Chinese regulations loosen up, Fung said.

COMEX gold GCcv1 gained 0.8 percent to $1,492.60, with trading volume at 28,686 lots of 100 ounces per lot.