* HK starts China bond futures trade
* First day trading lukewarm
* Volumes seen to rise gradually (Updates trading activity, fresh comments)
By Saikat Chatterjee and Michelle Chen
HONG KONG, April 10 (Reuters) - Chinese government debt futures got off to a slow start in Hong Kong on Monday as offshore investors, trading the world's third's biggest bond market for the first time, grappled with some operational issues and contract limits.
Foreign investors are expected to slowly embrace the new access to mainland China's $9.5 trillion bond market, behind only the United States and Europe in size.
"It will take awhile for investors, especially non-Asian investors to gain familiarity with the market, trading behaviour, as well as operational aspects of bond settlement," said Desmond Fu, Asian fixed income portfolio manager at Western Asset Management.
Just over 100 contracts for front-month China bond futures were traded on Monday in Hong Kong, according to Thomson Reuters data. That is a tiny amount when compared to the more than 120,000 trades in three-year Korean treasury bond futures on the same day.
Hong Kong's front-month futures contract on five-year China bonds was bid at 99.09 and offered at 99.24 as of 5:10 p.m. (0910 GMT), according to Thomson Reuters data.
The slow start was partly a result of trading constraints, such as a position limit of 10 billion yuan ($1.45 billion) on net futures contracts, said Frances Cheung, head of rates strategy, Asia ex-Japan at Societe Generale in Hong Kong.
The contract size for the bond futures is 500,000 yuan ($72,457) each.
"We are still studying if we need to open an account in the exchange or do it via other institutions," said a trader at a Chinese bank in Hong Kong.
Offshore bond futures are seen as a tool for investors to manage their interest rate risk, and to take an indirect position on China's booming onshore bond market.
Volumes in China's bond futures market has exploded in recent months. The market was re-launched in September 2013, nearly two decades after a multi-billion-yuan trading scandal led to its closure in 1995.
Unlike its equity or FX market counterparts, bond investors typically use swap contracts to hedge their interest rate risk.
Chinese policymakers have recently allowed some large investors access to the onshore market for hedging purposes, which has reduced activity in offshore debt futures.
Foreign investor participation may also be limited by concerns over the protracted yuan weakness and the difficulty of repatriating funds across the border.
In December, China's bond market suffered a punishing selloff amid concerns over a liquidity squeeze and a mounting debt load that had its origins in speculative and unproductive investments.
Last month, some of the world's biggest index compilers, such as Citigroup and Bloomberg, took the first steps to include Chinese debt in their indexes, while Premier Li Keqiang has said China was considering linking the Hong Kong and the mainland debt markets this year. ($1 = 6.9060 Chinese yuan renminbi) (Additional reporting by Umesh Desai; Editing by Shri Navaratnam and Randy Fabi)