UPDATE 3-US natgas futures up 2 pct ahead of Thursday's EIA data

* Buyers step in expecting light stock build on Thursday

* Warmer extended forecasts prop up prices

* Coming Up: EIA, Enerdata natgas storage data on Thursday

(Releads, adds quote, spread data, updates with closing prices)

By Joe Silha

NEW YORK, July 11 (Reuters) - U.S. natural gas futures
closed higher on Wednesday, lifted by technical buying ahead of
Thursday's weekly inventory report and by forecasts for warmer
weather later this week and next week that should increase air
conditioning use.

A warm summer so far and power companies switching from coal
to cheaper gas have driven natural gas futures up about 50
percent since posting a 10-year low of $1.90 per mmBtu in April.

"It's been a very choppy market, but I think we're going to
test higher levels. The storage surplus, while still big, should
continue to shrink with more hot weather ahead," a New
England-based broker said, noting expectations that government
data on Thursday will show another below average storage build.

Front-month gas futures on the New York Mercantile
Exchange ended up 11.6 cents, or 4.2 percent, at $2.853 per
million British thermal units after trading between $2.718 and
$2.861. The gain follows a 5.1 percent loss on Tuesday.

Relative strength in the front contract narrowed spreads to
winter months, with the December premium to August ending at
51.9 cents, down 3.7 cents from Tuesday and nearly 35 percent
below this year's peak of 79.3 cents set one month ago.

Private forecaster MDA EarthSat noted the six- to 10-day
outlook trended warmer today for the Northeast and Midwest, with
some much-above normal temperatures expected next week. Normal
readings were anticipated across the South.

While the weather still looks supportive, many technical
traders expect prices to have a hard time breaking back above
last week's six-month spot high of $3.06.

They note the market has struggled as prices near the $3
mark, a level that could cause gas to lose its competitive edge
over coal for power generation and again slow overall demand.

In addition, they note that in spite of a below-average
string of storage builds this summer, inventories are still at
record highs for this time and well above last year and the
five-year average.

ANOTHER BELOW AVERAGE STORAGE BUILD

Traders and analysts awaited Thursday's U.S. Energy
Information Administration report on U.S. natural gas
inventories.

A Reuters poll on Wednesday showed most were expecting
stocks to have gained 26 billion cubic feet last week, a build
that would again sharply cut the inventory surplus to last year
and the five-year average.

Stocks rose 87 bcf during the same week last year, while the
five-year average increase for that week is 90 bcf.
(Storage graphic: link.reuters.com/mup44s)

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 - down by a third from late-March highs.

Traders, expecting strong weather-related demand ahead,
believe that trend of lower builds will continue for at least
another two or three reports.

EIA storage data last week showed that total domestic gas
inventories for the week ended June 29 climbed to 3.102 trillion
cubic feet, a level not normally reached until early September.

Total storage is now about 76 percent full, with
producing-region stocks 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. EIA estimates that gas storage
will climb to a record 4.002 tcf by the end of October.

Concerns remain that the storage overhang could still drive
prices to new lows later this summer as storage caverns fill.

HIGH PRODUCTION, RISING DEMAND

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.

In its July Short-Term Energy Outlook on Tuesday, EIA raised
its estimates for marketed gas production and consumption growth
in 2012.

The agency expects marketed natural gas production in 2012
to rise by 2.8 bcf per day, or 4.2 percent, to a record 68.98
bcfd. Consumption this year is seen climbing by 3.3 bcfd, or 4.9
percent, to 69.91 bcf daily.

EIA expects a 21 percent jump in electric power use in 2012,
primarily driven by utilities switching from coal to gas, to
more than offset declines in residential and commercial use.

A 42 percent drop in dry gas drilling rigs in the last nine
months has stirred expectations that producers were getting
serious about stemming the flood of record gas supplies.

(Rig graphic: r.reuters.com/dyb62s)

The problem is that the number of horizontal rigs, the type
most often used to extract oil or gas from shale, is just shy of
the record high of 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.

(Reporting By Joe Silha; Editing by John Picinich and Bob
Burgdorfer)