Place diced bacon in large stock pot over medium-high heat. Cook until almost crisp; add onions, and cook 5 minutes. Stir in water and potatoes, and season with salt and pepper. Bring to a boil, and cook uncovered for 15 minutes, or until potatoes are fork tender.
Pour in half-and-half, and add butter. Drain clams, reserving clam liquid; stir clams and 1/2 of the clam liquid into the soup. Cook for about 5 minutes, or until heated through. Do not allow to boil.
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