UPDATE 3-GameStop shares rise in early trade before being halted

(Adds analyst comment, background on rally)

By Aaron Saldanha and Thyagaraju Adinarayan

Feb 25 (Reuters) - GameStop Corp shares shot higher in early trading on Thursday before a series of NYSE trading halts, a day after an unexpected surge doubled the price of the video game retailer's stock.

The stock hit $160 at the open before being halted after several minutes of trading. Shares were changing hands at around $129 before the second halt.

The early rise built on Wednesday's rally in GameStop and other so-called "stonks" - an intentional misspelling of "stocks" - favored by retail traders on social media sites such as Reddit's WallStreetBets.

The new frenzy has puzzled analysts, with some ruling out another short squeeze of the stock which had battered some hedge funds, and fueled more hype after some Twitter users pointed out a cryptic tweet of an ice-cream cone photo from activist investor Ryan Cohen - a major shareholder in GameStop and a board member.

A short squeeze takes place when the price of a heavily shorted stock rises sharply, forcing short-sellers who had bet against the stock to buy it at those prices to avoid further losses.

"Short interest, though still significant, is now starting out from a different base than last time when it was more than 100%," said Ankit Gheedia, Head of Equity and Derivative Strategy, Europe for BNP Paribas.

"And this time around (GameStop trading) is likely to have a smaller impact as people who got burnt last time may not participate in this episode."

GameStop shares were still well below their peak of $483 in January.

GameStop was the fourth most traded stock by Fidelity's customers on Wednesday, with buy orders outnumbering sell orders nearly 2-to-1, as per the broker's data.

The latest surge comes days after Reddit trader Keith Gill, who runs the YouTube channel Roaring Kitty, doubled down on GameStop and bought additional shares last week.

Gill testified to Congress last week that he remains bullish on GameStop, with his words "I like the stock" gaining popularity, being quoted by hundreds of his online followers and featuring on financial-themed meme pages online.

Gill, known to followers as DeepF—ingValue on Reddit, reportedly boosted his stake in GameStop soon after his Congressional testimony.

Reddit discussion threads were buzzing again about GameStop on Thursday, with members exhorting others to pile in as the rally gathers steam.

"Bought lots more #GME today, let's keep fighting !!," wrote one Reddit user Fundssqueezzer, while another user Responsible_Fun6255 said, "Rise of the planet of the ape: GME edition".

Earlier on Thursday, GameStop's Frankfurt-listed shares trebled at one point, overshooting the 100% surge on Wall Street overnight, as European retail traders joined in the fresh buying push.

The sharp moves surprised the market, which thought the excitement behind the recent Reddit-fueled rally had died down.

RISKY BETS

GameStop shares skyrocketed in January as retail investors, urged on by WallStreetBets, bought the stock as a way to punish hedge funds that had taken an outsized short bet against it.

The squeeze hurt Melvin Capital's Gabriel Plotkin, whose firm was left needing a $2.75 billion lifeline supplied by hedge fund Citadel LLC's Kenneth Griffin and Point72 Asset Management's Steven Cohen.

The risky trading strategies employed by some traders on Reddit have drawn the ire of investing legends such as Charlie Munger, long time business partner of Warren Buffett.

"It's really stupid to have a culture which encourages as much gambling in stocks by people who have the mindset of racetrack bettors," said Munger, Berkshire Hathaway's vice chairman.

GameStop's U.S.-listed shares soared nearly 104% on Wednesday. The volatility in GME, AMC Entertainment and other stocks led to outages on Reddit and periodic trading halts by the New York Stock Exchange.

Online brokerage Robinhood said in a tweet that the NYSE action would impact all brokerages, but that it had not paused trading on the shares.

"It's a pretty risky play to try and buy now ... what we might (see) at the open of the cash market is some people trying to get in," said Oriano Lizza, premium sales trader at CMC Markets in Singapore, which does not offer pre- or post-market trade.

The latest surge comes after a couple of weeks that saw the shares move in relatively tighter ranges.

"It's a marathon, not a sprint. Whatever happens resist the urge to sell. The longer we hold the higher it goes," said @catchme1fyoucan, an Italy-based user of retail trading platform eToro, in a discussion on GameStop. (Reporting by Aaron Saldanha in Bengaluru, Tom Westbrook in Singapore and Danilo Masoni in Milan; Additional reporting by Sagarika Jaisinghani; Writing by Anirban Sen; Editing by Jason Neely, Bernard Orr and Nick Macfie)