UPDATE 2-Late-season cold drives front US natgas futures to 18-mth high

* Nuclear outages still running above normal

* Chilly weather to continue into early April

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

(Adds trader quote, updates prices, changes byline)

By Joe Silha

NEW YORK, March 27 (Reuters) - U.S. natural gas futures edged higher on Wednesday for a second straight day, with chilly weather forecasts for the next week or more driving the new front-month May contract to its highest mark in more than 18 months.

Cold late-season weather has triggered strong demand for heating which put a huge dent in inventories, while above-average nuclear plant outages have increased gas used for power generation and also helped tighten the market.

"Colder temperatures and a declining storage surplus have supported prices, but so has a flow of buying from money managers," Citi Futures analyst Tim Evans said in a report.

"While this inflow is supportive as long as it lasts, with the category now holding a record net long exposure, even a partial cycle of long liquidation could put significant downward pressure on prices," he added.

At 12:55 p.m. EDT (1655 GMT), front-month gas futures

on the New York Mercantile Exchange were up 8.5 cents, or 2.1 percent, at $4.076 per million British thermal units after climbing midday to $4.093, the highest since September 2011.

Some traders agreed the market may be vulnerable to a sharp, technical sell-off, noting front-month futures prices have rallied nearly 30 percent since mid-February.

The strong move up has been accompanied by decent volume and a 215,000-lot gain in open interest, bullish signs that indicate new buying has fueled much of the upside but could eventually trigger a sharp move lower if longs decide to liquidate.

Futures-only OI hit a record high for the eighth straight session on Tuesday, climbing to 1,407,669 contracts.

Traders said some players may be buying ahead of the three-day weekend, noting NYMEX floor and electronic trading will be closed Friday for the Good Friday holiday.

But with production still flowing at or near a record peak and milder spring weather likely to soon slow demand, many traders remain skeptical of further upside.

They note that gas prices above $4 should curb demand by prompting some utilities to use more coal to generate power and increase supply by encouraging producers to turn on more wells.

Commodity Weather Group noted the six-to-10-day outlook turned colder overnight for the Midwest, East and South, with seasonal to cool temperatures still expected for the eastern half of the nation in the 11-to-15-day time frame.

STRONG STORAGE DRAW EXPECTED

U.S. Energy Information Administration data last week showed total gas inventories for the week ended March 15 had dropped to 1.876 trillion cubic feet but were still 162 billion cubic feet, or 9 percent, above the five-year average.

(Storage graphic: )

Traders and analysts expect that surplus to shrink sharply in Thursday's inventory report, with most looking for an 87 bcf withdrawal, according to a Reuters poll.

Inventories rose an adjusted 45 bcf in the same week last year, while storage normally gains 6 bcf for that week.

Stocks will likely end the heating season near the 1.73-tcf average for March 31, or about 30 percent below last winter's record high finish of 2.48 tcf. A Reuters poll in mid-January put the consensus end-winter inventory forecast at about 2 tcf.

Total gas pulled from storage so far this winter is about 2.050 tcf, roughly 580 bcf, or 39 percent, more than the same time last year and nearly 5 percent above normal.

RIGS CLIMB, OUTPUT NOT SLOWING MUCH

Baker Hughes

data on Friday showed the gas-directed drilling rig count fell last week for the third time in four weeks, dropping by 13 to 418.

(Rig graphic: )

The count is hovering just above the 14-year low of 407 posted two weeks ago, but production has not slowed much, if at all, from the record high posted last year.

(Additional reporting by Eileen Houlihan; Editing by John Wallace and Chris Reese)

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Keywords: MARKETS NYMEX/NATGAS