By Yinka Adegoke

NEW YORK (Reuters) - Amazon.com Inc <AMZN.O> on Tuesday launched an early version of its highly anticipated digital music download store, which is seen as a potential rival to Apple Inc's <AAPL.O> dominant iTunes service.

The "Amazon MP3" store allows users to buy music without copy protection technology, so the songs can play on a variety of devices, including Apple's market-leading iPod.

The retailer believes selling music without protection will attract consumers who have been reluctant to buy songs that are digitally formatted to restrict where they can be played or transmitted. That is the case with iTunes, where most song downloads for 99 cents apiece are usually only compatible with an Apple iPod player.

Amazon has priced most of its songs from 89 cents to 99 cents each, with more than half of the 2 million songs priced at 89 cents, the online retailer said in a statement.

"We're not trying to replace anyone's media player. We're just making ourselves compatible with what they have today," said Bill Carr, vice president for digital music at Amazon.com, in an interview.

Many Web companies and start-ups have proposed business models to take on iTunes, which has a 70 percent market share of digital music sales. Many have also failed as they get caught up in negotiations with the music companies.

But analyst David Card of Jupiter Research said Amazon's entry to the market could offer real competition to iTunes and boost digital music in general.

"I think we're finally getting to the point where we have a competitive market," Card said. "The catalogue is still small, but they have enough of an offering and they know how to sell music."

For weeks Amazon had been expected to launch its iTunes rival after signing deals with Universal Music Group, part of French media giant Vivendi <VIV.PA>, and EMI.

Carr would not give a time-frame for when Amazon would offer music from the other two major music companies, Sony BMG Music Entertainment and Warner Music Group Corp <WMG.N>.

U.S. music companies, concerned about piracy enabled by file-sharing Web sites, are mulling new business models with a goal of increasing digital revenue as CD sales drop more sharply than anticipated.

They also hope to create alternatives to iTunes to boost their negotiating power against Apple when licensing contracts are renewed.

Amazon is one of the largest U.S. retailers of music through CD sales, but says it is not concerned that digital music will cannibalize sales of CDs.

For example, it currently retails a typical top 100 CD at $9.99, plus delivery fees, while the same album sells for $8.99 as a digital download.

Past experience has also shown that allowing customers to sell used CDs alongside new CDs boosted sales overall, Carr said.

"We gave customers more choice, more selection and lower prices and the result was that they want to shop with us more often," said Carr. "We anticipate that all boats will rise with this vastly improved customer experience for music lovers."

Amazon shares rose 65 cents to $93.24 in afternoon trading on the Nasdaq.