* Front-month still below last week's 6-month high * Some heat still on tap in six to 10-day outlooks * Recent storage data, drilling rig data supportive * Coming Up: API oil data Tuesday, EIA oil data Wednesday By Eileen Houlihan NEW YORK, July 10 (Reuters) - U.S. natural gas futures slid early Tuesday, as traders again blamed profit-taking after a big run higher on Monday. With more hot weather on tap for the nation in the coming weeks, most traders expect heavy air conditioning demand to limit the downside. But after prices slid from last week's six-month spot high over $3 per mmBtu - where gas tends to lose its appeal over coal for power generation - traders expect the upside to be limited as well. As of 9:23 a.m. EDT (1323 GMT), front-month August natural gas futures on the New York Mercantile Exchange were at $2.821 per mmBtu, down 6.2 cents, or about 2 percent. The contract rose to $3.06 last week, the highest mark for a front month since early January, according to Reuters data. Since posting a 10-year low of $1.902 twice in late April, nearby futures are up about 49 percent on signs that record production was finally slowing and demand picking up as more electric utilities switched from coal to gas. LAGGING STORAGE BUILDS Last week's gas storage report from the U.S. Energy Information Administration showed total domestic gas inventories rose 39 billion cubic feet to 3.102 trillion cubic feet. Weekly storage builds have fallen below the seasonal norm for 10 straight weeks and helped pull the surplus to last year - now at about 602 bcf - to fall by a third from late-March highs. The trend has raised expectations that record-high inventories can be trimmed to more manageable levels in the 19 weeks left before winter withdrawals begin. Traders expect the inventory surplus to last year and the five-year average to shrink again in this week's report, with early injection estimates ranging from 19 bcf to 29 bcf versus last year's adjusted build of 87 bcf and the five-year average increase for that week of 90 bcf. (Storage graphic: link.reuters.com/mup44s) But total storage is still at record highs for this time of year and stands at about 76 percent full, a level not normally reached until early September. Producing-region stocks are at 84 percent of estimated capacity. The storage surplus to last year will have to be cut by at least another 355 bcf to avoid breaching the government's 4.1-tcf estimate of total capacity. Stocks peaked last year in November at a record 3.852 tcf. Concerns remain that the storage overhang could still drive prices to new lows later this summer as storage caverns fill. PRODUCTION STILL HIGH While gross U.S. gas production has slowed some from January's record highs, output is still flowing at near all-time peaks despite declines in dry gas drilling and planned output cuts by several key producers. Data from Baker Hughes last week showed the gas-directed rig count rose by 8 to 542 after sliding to a 13-year low the prior week. It was the first gain in 7 weeks. (Rig graphic: r.reuters.com/dyb62s) A 42 percent drop in dry gas drilling in the last nine months has stirred expectations that producers were getting serious about stemming the flood of record gas supplies. The problem is that horizontal rigs, the type most often used to extract oil or gas from shale, are hovering just shy of the record high 1,193 hit in May. Drillers continue to move rigs to more profitable shale oil and shale gas liquid plays that still produce plenty of associated dry gas that ends up in the market after processing. That has slowed the overall drop in dry gas output. MORE FUNDAMENTALS The National Weather Service's 6- to 10-day outlook issued on Monday called for above-normal readings for about the northern two-thirds of the nation, with below-normal readings in Texas and near-normal readings elsewhere. Nuclear power plant outages were running at about 6,800 megawatts, or 7 percent, on Tuesday, up from 3,600 MW out a year ago and a five-year outage rate of just 3,500 MW. The U.S. National Hurricane Center said tropical cyclone formation was not expected over the next 48 hours. The Atlantic hurricane season runs from June 1 through Nov. 30. The latest government statistics show the Gulf of Mexico accounts for 6 percent of U.S. gas production and just over 20 percent of U.S. oil production. (Reporting by Eileen Houlihan;editing by Sofina Mirza-Reid)

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