SAN JOSE (Reuters) - Apple Inc took the wraps off an 8-inch tablet on Tuesday in its biggest product move since the debut of the iPad two years ago, launching a smaller version of the gadget into a market staked out by Amazon.com Inc and Google Inc.

The 7.9 inch "iPad mini" marks Apple's first foray into the smaller-tablet segment. Apple also announced a fourth-generation full-sized iPad with improvements in graphics and processing speeds, just two days before Microsoft is due to show off its own "Surface" tablet.

Apple hopes to beat back their charge onto its home turf of consumer electronics hardware, while safeguarding its lead in the larger 10-inch tablet space that even deep-pocketed rivals like Samsung Electronics have found tough to penetrate.

Chief Executive Tim Cook kicked off Tuesday's event, held at the opulent California Theater in San Jose, by touting the just-launched iPhone 5 as the fastest-selling smartphone in history. He added that there are now 200 million devices running iOS6, the fastest upgrade rate he has seen since the mobile software was launched about a month ago.

Amazon's Kindle and Google's Nexus 7 have grabbed a chunk of the lower end of the tablet market and proved demand for a pocket-sized slate exists. That has forced Apple into a space it has avoided and at times derided, analysts say.

A smaller tablet would mark the first device to be added to Apple's compact portfolio under Cook, who took over from co-founder Steve Jobs just before his death.

"Apple sensed early that they had a real winner with the iPad and that has proven to be correct," said Lars Albright, co-founder of mobile advertising startup SessionM and a former Apple ad executive. "They have a large market share, and to protect that market share they have got to be innovative."

In a rarity for a company that tightly controls events, Apple live-streamed its invitation-only presentation - where it is expected to unveil the mini tablet - to Apple devices such as the iPad and Macintosh computers.

Wall Street analysts have said for months that Apple was planning a less expensive version of the iPad to take on cheaper competing devices, a move they say might hurt its margins but prevent its rivals from dominating an increasingly important segment.