The newly launched 3G iPhone, which lets users connect to the Web at high speeds, is expected to be one of the hottest gadgets for the holiday season. Best Buy hopes it will draw more traffic and additional purchases from customers coming for the iPhone.

Best Buy will start selling the iPhone on September 7.

The mobile handset could boost Best Buy sales at stores open at least 14 months by 1.5 percent to 2 percent in the second half, Banc of America Securities analyst David Strasser said. He estimated that one million iPhones could be sold at Best Buy in the third and fourth quarters.

"We think this underscores Best Buy's strong working relationship with Apple and provides even greater differentiation from peers," Standard & Poor's Equity analyst Michael Souers said in a research note.

"In addition, we believe the iPhone will help grow traffic and sales in this year's holiday season, which could be weak overall on slowed consumer spending," he added.

At Best Buy stores, the iPhone will sell for $199 to $299 and will require a two-year contract with carrier AT&T Inc to operate.

"We believe that despite the difficult economic times, market share gains and price stability are leading to positive (same-store sales) this quarter for Best Buy," Credit Suisse analyst Gary Balter said in a research note.

Best Buy shares were up 9 cents to $45.00 in early afternoon New York Stock Exchange trading after climbing as much as 3 percent earlier in the session.

(Reporting by Karen Jacobs; editing by John Wallace)