By Malathi Nayak and Alexei Oreskovic

SAN FRANCISCO (Reuters) - Google Inc's "Nexus 7" tablet is off to an encouraging start, with major retailers running out of the gadgets as the Internet company's first entry in an increasingly crowded market showed up in U.S. stores on Friday.

GameStop said on Friday it had already run through its first two allocations of the tablet, co-developed by Google and Taiwan's Asustek that starts at $199 and has drawn glowing reviews from major gadget reviewers.

Sam's Club, the warehouse chain owned by Wal-Mart Stores Inc, and Staples listed the device as being out of stock on their websites as of Friday. Office Depot's website continued to offer the device for sale as of the afternoon.

Google unveiled the 7-inch tablet, which the company hopes will allow it to better compete against Apple Inc and Amazon.com Inc and funnel more people into its trove of online content, at its annual developer conference in San Francisco at the end of June.

Consumers have been able to pre-order the tablet from Google and several retailers in past weeks, and Google said it began shipping devices to consumers on Friday.

"We blew through the first two allotments," a GameStop spokesperson said.

A third allotment of preorders will be available in August. The game retailer declined to share exact number of preorders.

The Nexus 7 uses Google's Android mobile software, which has become the most prevalent operating system for smartphones globally, but has so far failed to make a big splash in the tablet market.

By taking a greater role in the tablet arena, Google hopes to ensure that its online services remain front-and-center to consumers, as tablets by Apple and Amazon are increasingly becoming gateways to the Web and Web-based content such as movies and music.

Google executives have been quoted saying that the company will not generate a profit margin when the Nexus 7 is sold in retail stores. A report by research firm IHS iSuppli on Wednesday estimated that the bill of materials for the $199 version of the device, which features 8GB of flash memory and a high-end Tegra 3 processor by Nvidia Corp, is $152.

Apple still dominates the market for touch-screen tablet computers with its two-year old iPad. Amazon.com's $199 Kindle Fire tablet is based on open-source Android computer code, but the device features a customized interface that does not use many Google services.

The Nexus 7 has drawn accolades from reviewers like the Wall Street Journal's Walt Mossberg. Pundits reckon the $199 Nexus 7 may seriously threaten the same-priced Kindle Fire, especially since Google's offering has a camera and a higher-resolution screen.

Google Executive Chairman Eric Schmidt, speaking to reporters on Thursday at the Allen & Co conference in Sun Valley, said there was "immense demand" for the Nexus 7 in the first week after it was introduced.

Shares in the company climbed 1.1 percent to $576.52, buoyed by a broader U.S. market rally.

(Additional reporting by Jessica Wohl and Dhanya Skariachan in New York; Editing by Andrew Hay)