* Lumber futures rise the $10 daily limit
* Rebuilding after Sandy could stretch well into 2013
* Market watcher says inventories now ``on the low side''
* Hope for repair demand also boosts Home Depot shares
CHICAGO, Oct 31 (Reuters) - U.S. lumber futures rallied to their highest in 19 months, boosted by speculation that demand would surge as thousands of homes, damaged by the massive storm, Sandy, are rebuilt in the coming months.
Trade sources said the home-rebuilding process in the northeastern United States, which bore the brunt of Sandy, could stretch well into 2013, keeping demand for lumber robust.
The sources also said efforts by homeowners to quickly rebuild or repair their homes could be hampered by the fact that lumber mills usually reduce stocks going into the winter months, when demand tends to wind down.
The storm, which made landfall on the eastern seaboard late Monday and has killed at least 45 people, may cause up to $15 billion in insured losses, according to one disaster-modeling company.
``Historically, this is what happens after a natural disaster,'' said Michael Young, president of Pacific Futures Trading in Seattle, Washington.
Chicago Mercantile Exchange November, January and March lumber futures rose by the daily trading limit of $10 per thousand board feet and were locked at those levels to effectively shut down trading.
November futures rose $10 to $318.80 per tbf, the highest level since March 2011. Benchmark January futures were $10 higher at $331.20 per tbf at 12:19 p.m. CDT (1719 GMT).
``Inventories are on the low side in part due to the seasonal trend as we get into the winter months,'' Jon Anderson, president of Random Lengths, which tracks prices and trends in the lumber market, said by telephone from Eugene, Oregon.
He said prices for lumber in the cash market began advancing last week in reaction to Sandy.
Prices for western spruce in the cash market have risen 7.5 percent since last week, according to data from Random Lengths.
Traders said the lumber market has been gaining momentum in recent weeks amid promising signs in the housing market, which was at the heart of the financial meltdown in 2008.
The Commerce Department said on Tuesday that the U.S. home vacancy rate, which measures empty properties and those for sale, fell to the lowest level in seven years in the third quarter, as demand for housing picked up.
Open interest in lumber futures has ballooned nearly 20 percent since last week to 10,428 contracts as of Tuesday, according to CME data.
The net long position held by non-commercials, which include hedge funds, has grown by nearly 90 percent since the start of October to 1,784 contracts as of Oct 23, according to data from the Commodity Futures Trading Commission.
Traders said speculators were behind much of the buying in lumber futures as they anticipated improved demand as those affected by Sandy begin to rebuild or repair their homes.
``There is anticipation of a big rush in demand after this storm,'' said a trader, who declined to be named.
The type of lumber traded at the CME is so-called framing lumber, primarily used in home building.
The optimism over demand for lumber and other home-building materials was also reflected in Home Depot, the world's largest home improvement retailer, whose shares rose 2.4 percent.