Hundreds of people are lining up at Apple Inc stores on both U.S. coasts hours before the iPad 2 goes on sale on Friday, signaling strong appetite for a device that extends Apple's lead in the fledgling market it created.

About 350 people queued up outside the Apple store on Fifth Avenue in New York at midday ahead of the 5 p.m. launch, and a handful of people had slept there overnight.

Around 100 people waited outside Apple's flagship San Francisco store at 9 a.m. local time.

Kurt Collins, 31, and Damon Brown, 34, arrived at 6 a.m. to find a line of about 40 people ahead of them. They said the line was impressive, but smaller than a year ago for the initial iPad launch.

The iPad 2 is definitely going to be faster, plus it's cool, said Collins, a tech entrepreneur. He already owns a first-generation iPad, which he plans to sell once he gets his hands on the new device.

Analysts and investors will scrutinize Friday's turnout across the United States, keen to estimate if demand for the tablet remains strong nearly a year after the original proved a smash hit, single-handedly created the tablet market, and inspired a wave of imitators from Motorola to Research in Motion.

Chief Executive Steve Jobs last week unveiled the faster, lighter, thinner and camera-equipped iPad 2, which has since garnered strong reviews.

Shares of Apple rose 1.3 percent to $351.25 on Nasdaq at mid-afternoon.

Apple may be hoping for a repeat of April 2010, when thousands of people lined up to buy what was then a largely novel device with an uncertain market. But analysts say the 10-inch touchscreen iPad 2 has been improved incrementally, not reinvented wholesale. It is thinner, faster and adds a pair of cameras for video chat.

The benchmarks for the iPad 2 are clear. The first iPad sold 300,000 units on its first day, 500,000 in the first week, and crossed the 1 million unit mark in 28 days.

Given that the iPad 2 will be available in far more stores to start than the original model, Wall Street would be surprised if the device fails to outpace its predecessor in the early going.

In addition to being sold at more than 200 Apple outlets in the United States, the iPad 2 will be available starting Friday in the stores of AT&T and Verizon Wireless, as well as Best Buy, Target Corp and Wal-Mart Stores Inc.

Unlike last year, Apple did not take orders ahead of the release, so anyone wanting first dibs on an iPad will have to journey to a store. That may help bulk up store lines, providing Apple the buzz it craves and is expert at generating.

That buzz may prove important as rivals gear up for their own full-blown assault on the same market.

GROWING FAST

Tablet sales are expected to surge to more than 50 million units this year, with Apple capturing more than 70 percent of the market. The iPad 2 hits store shelves in more than two dozen additional countries on March 25.

Apple is releasing the second version of the iPad before many of its rivals have even brought their first tablets to market. Apple sold 15 million iPads last year, generating $9.5 billion in sales, and had the tablet market largely to itself.

The iPad remains the most affordable tablet on the market, starting at $499.

JPMorgan analyst Mark Moskowitz warned this week of a potential bubble forming in the market as early as this year, as Apple's rivals produce far more tablets than consumers will actually buy.

He said supply could outstrip demand by as much as 36 percent in 2011 -- a whopping 17.2 million units.

Blackberry maker RIM and Hewlett-Packard Co are set to release tablets in coming months. Some analysts believe RIM and HP could provide Apple with some competition, because both devices offer unique software, and both have formidable sales channels.

And although Samsung Electronics and Motorola have launched tablets, neither appears to poised to give the iPad a run for its money.

The technical and form factor improvements of the iPad 2 stand to make it tougher for the first generation of competitive offerings to play catch-up, Moskowitz wrote in a research note on Wednesday.

(Editing by Steve Orlofsky and Richard Chang)

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