By William Kemble-Diaz

LONDON (Reuters) - Some of the world's biggest property fund firms could eventually be tempted to trade property derivatives in a material way as long as the young market continues growing.

However, listed property firms such as real estate investment trust (REITs) could be a tougher nut to crack, leading industry figures at the Reuters Global Real Estate Summit said this week.

Matthias Danne, who sits on the board of DekaBank, Germany's biggest operator of open-ended property funds, said he was interested in putting investor money to work quickly using property derivatives.

"I would use them if the market was liquid enough so I could invest my liquidity and I have a lot of that," Danne said.

The property derivatives market offers over-the-counter trading mainly in swaps based on the total return on property benchmarks such Investment Property Databank's UK All-Property index in exchange for interest payments.

The instruments enable investors to gain or hedge exposure to bricks and mortar investments synthetically and to bypass some of the transaction costs normally associated with buying and selling property directly, such as stamp duty.

Debut property derivative trades have been recorded in France, Germany, Italy, Japan, the United States, Australia, Canada and Hong Kong. But the market is most established in Britain where dealing volumes hit a record 3.4 billion pounds in the first quarter.

That is puny compared with other markets, such as the $62 trillion (31 trillion pound) credit derivatives market, and for the time being too small for some global property fund managers.