* Front month hits highest mark since late May * Hotter weather still on tap in six to 10-day outlooks * Recent storage builds falling well below average * Coming Up: EIA oil data Wed., EIA gas data Thurs. (Adds cash prices, updates throughout) By Eileen Houlihan NEW YORK, June 20 (Reuters) - U.S. natural gas futures pared early gains on Wednesday, but remained up about 2 percent, as hot weather in consuming regions boosted air conditioning demand and coal to gas switching was likely to lead to another light weekly inventory build this week. A recent stir in tropical activity, the building heat and recent trend in storage builds falling below average for the past eight out of nine weeks, has kept traders cautious, despite some profit taking on Tuesday. Front-month July natural gas futures on the New York Mercantile Exchange were at $2.591 per million British thermal units in early trading, up 4.6 cents, or nearly 2 percent. The contract rose as high as $2.679 in electronic trade, the highest mark for a front month contract since the 3-1/2-month high of $2.759 in mid-May. But that jump was said to remove gas from favor over coal for power generation. Since posting a 10-year low of $1.902 twice in late April, nearby futures are up about 38 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 $2.61 on active volume near 794 million cubic feet, up 2 cents from Tuesday's average of $2.59. Early Hub cash deals also firmed to about 1 cent over the front month contract, from deals done late Tuesday at a 1-cent discount. Gas on the Transco pipeline at the New York citygate NG-NYCZ6 was heard early near $4.14 on volume near 524 mmcf, up 69 cents from Tuesday's average of $3.45 on another day of expected hot weather. LIGHT BUILDS BUT STORAGE STILL AT RECORD Last week's gas storage report from the U.S. Energy Information Administration showed total domestic gas inventories rose by 67 billion cubic feet to 2.944 trillion cubic feet. Lagging stock builds this spring matched or fell below seasonal norms in eight out of the past nine weeks, raising expectations that record-high storage can be trimmed to more manageable levels in the 22 weeks left before winter withdrawals begin. The trend is likely to continue this week, with early injection estimates for this week's report ranging from 60 bcf to 70 bcf versus last year's adjusted build of 90 bcf and a five-year average increase for that week of 87 bcf. But stocks are still 32 percent above the same week in 2011 and 29 percent above the five-year average. (Storage graphic: link.reuters.com/mup44s) Concerns remain that the storage glut will drive prices lower this summer as storage caverns fill. Inventories stand at 72 percent full, with producing-region stocks at 82 percent of capacity. The storage surplus to last year will have to be cut by at least another 460 bcf to avoid breaching the government's 4.1-tcf estimate of capacity. Stocks peaked last year in November at a record high of 3.852 tcf. The EIA last week said it expected gas storage to climb to a record 4.015 tcf by the end of October. PRODUCTION GROWTH SLOWING, STILL RECORD OUTPUT The EIA last week also trimmed its estimates for domestic natural gas production and consumption growth in 2012. Gas demand picked up sharply this year as spring prices hit 10-year lows, prompting some electric utilities to switch from coal to cheaper gas for power generation. EIA expects 2012 marketed gas production to average a record high 68.47 bcf per day, up 3.4 percent from last year. But demand in 2012, driven by strong gains in the electric power sector, was expected to rise 4.1 percent. Baker Hughes data on Friday showed the gas-directed rig count fell to 562, its seventh drop in eight weeks and the lowest level in nearly 13 years. (Graphic: r.reuters.com/dyb62s) The 40 percent drop in dry gas drilling in the last eight months has raised expectations that producers were finally getting serious about slowing record supplies. 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. Traders noted recent declines in dry gas drilling and planned output cuts by several producers seemed to be taking a modest toll on gas production, but analysts say cuts so far of about 1 bcf per day were not enough to significantly reduce supplies. MORE FUNDAMENTALS The National Weather Service's six to 10-day outlook issued on Tuesday again called for above-normal readings for most of the nation, with below-normal readings along the West Coast and in much of the Northeast. Nuclear power plant outages were running at about 10,000 megawatts, or 10 percent, on Wednesday, up from 9,200 MW out a year ago and a five-year outage rate of just 6,300 MW. The U.S. National Hurricane Center was monitoring a low-pressure system over the northwestern Caribbean Sea with a 20 percent chance of further development over the next 48 hours. The Atlantic hurricane season runs from June 1 through Nov. 30. (Reporting by Eileen Houlihan; editing by Sofina Mirza-Reid)

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