* Front month down for second day, inventories bloated * Warm weather on tap for consuming regions * Recent production, drilling rig data supportive * Coming Up: EIA natgas storage data Thursday (Adds cash prices, updates throughout) By Eileen Houlihan NEW YORK, June 7 (Reuters) - U.S. natural gas futures slipped early Thursday, edging lower for a second straight day ahead of government storage data that should show another healthy build to already bloated inventories. But warm weather on tap for consuming regions in the Midwest and Northeast should boost cooling demand and supportive production and gas drilling rig data were both expected to limit more losses. Most traders and analysts expect weekly inventory data from the U.S. Energy Information Administration to show a build of about 56 billion cubic feet when it is released today at about 10:30 a.m. EDT (1430 GMT), a Reuters poll showed. Stocks rose an adjusted 81 bcf for the same week last year, and on average over the past five years have gained 99 bcf that week. Front-month July natural gas futures on the New York Mercantile Exchange were at $2.399 per million British thermal units in early trading, down 2.2 cents, or about 1 percent. The nearby contract lost 1 percent on Wednesday after rising about 5 percent in the prior two sessions. Futures hit a 3-1/2-month high of $2.759 in mid-May, but traders said the big rise removed gas from favor over coal for power generation. But since posting a 10-year low of $1.902 twice in late April, nearby futures are up 26 percent on signs that record production was finally slowing and demand picking up as more electric utilities switched from coal to gas. In the cash market, gas bound for the NYMEX delivery point Henry Hub NG-W-HH in Louisiana was heard early at $2.33 on volume near 540 million cubic feet, down 8 cents from Wednesday's $2.41 average. Early Hub cash deals were also done at a 9-cent discount to the front-month contract, easing from deals done late Wednesday at a 6-cent discount. Gas on the Transco pipeline at the New York citygate NG-NYCZ6 was heard early near $2.47 on volume near 204 mmcf, down 7 cents from Wednesday's average of $2.54. DESPITE LIGHTER BUILDS, STORAGE STILL BLOATED Weekly gas storage data last week was well below average for the seventh time in eight weeks, but stocks remain at record highs for this time of year. Last week's EIA report showed U.S. natural gas inventories rose 71 bcf to 2.815 trillion cubic feet, still 35 percent above last year and 35 percent above the five-year average. (Storage graphic: link.reuters.com/mup44s) The surplus to last year has dropped 17 percent from late-March peaks, but concerns remain that the still large glut will drive prices lower this summer as storage caverns fill. The storage surplus to last year will have to be cut by at least another 480 bcf to avoid breaching the government's 4.1-tcf estimate of capacity. Stocks peaked last year in November at a record 3.852 tcf. PRODUCTION FALLING FROM RECORD EIA data last week also showed gas production was finally dropping from January's record high, with two straight monthly declines. The EIA said U.S. natural gas production fell 0.4 percent in March to 71.76 bcf as producers continued to scale back drilling in the face of low prices. It was a second monthly decline after a revised 1 percent fall in February. In addition, Baker Hughes data on Friday showed the gas-directed rig count fell by six to a 12-1/2 year low of 588. The 37 percent drop in dry gas drilling - since peaking at 936 in October - has stirred talk producers were finally getting serious about stemming the flood of supplies. But the shift away from dry gas to higher-value shale oil and shale gas liquid plays still produces plenty of associated gas that ends up in the market after processing. That has slowed the overall drop in dry gas output. (Rig graphic: r.reuters.com/dyb62s) MORE FUNDAMENTALS The National Weather Service's six- to 10-day outlook issued on Wednesday again called for above-normal readings for much of the nation, with normal or below-normal readings in Florida and the West. Nuclear power plant outages were running at about 16,600 megawatts, or 16 percent, on Thursday, up from about 15,100 MW out a year ago and a five-year outage rate of about 10,900 MW. (Reporting by Eileen Houlihan; Editing by Maureen Bavdek and Sofina Mirza-Reid)

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