President Barack Obama is gambling that the United States can nudge Myanmar further towards true political reform, a bet that could bring major diplomatic and economic benefits for both countries after more than 50 years of estrangement.

Obama's announcement that Secretary of State Hillary Clinton will visit Myanmar early next month marks a new stage of engagement with the country's new civilian government, which has enacted a series of reforms since it took over from the military after an election last year..

For the United States, rapprochement with Myanmar could eventually open a promising untapped market at the heart of the world's most economically vibrant region and counterbalance China, which has long been Myanmar's most important political and economic partner.

For Myanmar's civilian leaders the U.S. decision may mean the start of a broader political rehabilitation that could see economic sanctions eased or removed and the impoverished country begin to catch up with its booming neighbours.

But for both, it is a gamble that U.S. pressure and Myanmar's internal reforms will succeed in rolling back decades of entrenched military power and deliver real results rather than a fig-leaf for continued authoritarian control.

This is the most important progress we have seen since the military took over and destroyed what should have been the wealthiest country in Southeast Asia, said David Steinberg, a Myanmar expert at Georgetown University.

There has been some real effort at reform by the government, and the U.S. should do everything it can to increase the probability that it will continue.

VOTE OF CONFIDENCE

Obama signed off on the trip after speaking with veteran Myanmar democracy leader Aung San Suu Kyi, who told him she favoured more U.S. engagement and a Clinton visit.

Suu Kyi, in a further vote of confidence in the reform process, said she supported her National League for Democracy taking part upcoming by-elections -- a step which could see the party start to emerge as a real opposition in parliament..

Aung Din, a former political prisoner who now heads the U.S. Campaign for Burma advocacy group, said he welcomed Clinton's trip but worried that the reforms announced thus far were fragile and incomplete.

I hope that the regime will take this seriously and respond positively by releasing all the remaining political prisoners, he told Reuters. There is some risk that they may not continue to change.

Obama and Clinton have emphasized that Myanmar's leaders -- who this week won their bid to chair the 10-member Association of South East Asian Nations (ASEAN) in 2014 -- must do more to reform, release more political prisoners and end long-running conflicts in ethnic-minority areas.

Clinton said she would use her visit on December 1 to press home these points.

One of the reasons that I'm going is to test what the true intentions are and whether there is a commitment to both economic and political reform, she told CNN.

STAMP OF APPROVAL

But analysts said Clinton's trip underscored Washington's belief that Myanmar was finally shaking off domination by the military, which took power in a 1962 coup and killed thousands in a crackdown in 1988.

This is designed to give a very clear stamp of approval, said Priscilla Clapp, a retired diplomat who served as chief of the U.S. mission in Myanmar from 1999 to 2002 and is now a senior advisor at the Asia Society.

All of the things we have been asking for the last 20 years are now suddenly happening, and the United States had to find a way to respond. They can't remove the sanctions right away, so this was one way to do it.

The Obama administration began cautiously opening to Myanmar in 2009, and the drive has gained steam in recent months as the military-backed civilian government freed a first batch of political prisoners and took other reform steps.

The United States has had broad economic sanctions on Myanmar since 1988, and the European Union, Australia and Canada have also imposed sanctions in an effort to put pressure on the ruling junta..

While U.S. officials say lesser bans such as travel limits on officials are being relaxed, movement on major U.S. economic sanctions would require action by Congress where many lawmakers remain sceptical about the country's leadership.

Ernest Bower, director of the Southeast Asia program at the Centre for Strategic and International Studies and former head of the US-ASEAN Business Council, said many U.S. businesses hoped the door may open to the country, which has a population of about 54 million and rich resources including natural gas, minerals and timber.

This is an incredible opportunity. You just don't find an Asian economy that has been untouched by the developed countries for the last 40 years, Bower said.

RED TAPE

Even if sanctions are eased quickly -- an unlikely prospect -- analysts say it would take time for foreign businesses to move in, citing Myanmar's extensive red tape and lack of treaties on investment or trade protection.

While businesses may have to wait for any payoff, the diplomatic benefits are clear as long as the reform process continues.

For Obama, Myanmar may represent the best hope for success in his policy of engagement with traditional U.S. foes, which has hit a brick wall with Iran, North Korea and Syria.

Strengthening ties with Myanmar also plays into the broader U.S. strategy of countering China's rising influence. Myanmar in September scrapped plans for a huge dam built and financed by Chinese firms, and Washington is eager to see it move further out of Beijing's orbit.

I don't think anyone strategically wants to see Burma just become a quarry or a mine for China, said Sean Turnell, an expert on Myanmar at Australia's Macquarie University. The Burma issue is one where Obama can really reassert that the U.S. is back in Asia, and not going to let China dominate.

(Editing by Xavier Briand)