UPDATE 2-China vows to develop gold market as demand rises

* China c.bank says to let more banks to import, export gold

* Also vows to develop more gold derivatives

* Analysts say moves will help feed country's growing demand (Updates with background, market reaction)

By Rujun Shen and Simon Rabinovitch

BEIJING, Aug 3 (Reuters) - China will allow more domestic banks to export and import gold as part of steps to encourage more liquid trade, which could underpin the country's growing private demand for the precious metal.

The People's Bank of China said on Tuesday that it would allow banks to hedge bullion positions in overseas markets; urge banks to lend more to domestic gold firms looking to go abroad; and actively develop more yuan-denominated gold derivatives.

"Demand shows that basically they don't have enough gold for themselves. Their production is not good enough to meet their demand," said Ellison Chu, managing director of precious metals with Standard Bank in Hong Kong.

"The demand will be increased naturally if there are more and more investment tools related to gold," he added.

China is the world's largest producer of gold and second largest consumer of the metal after India.